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KELAG Group

Annual report 2012

KELAG-Kärntner Elektrizitäts-Aktiengesellschaft

Annual report 2012 – Table of contents

2

TABLE OF CONTENTS

I. Consolidated financial statements .................................................................................... 3

I.a Notes to the consolidated financial statements .......................................................... 8

I.b Exhibit ....................................................................................................................... 80

II. Group management report ............................................................................................ 82


Annual report 2012 | Income statement of the KELAG Group

3

I. CONSOLIDATED FINANCIAL STATEMENTS

1. Income statement of the KELAG Group

EUR k Note

1/1 –

31/12/2012

1/1 –

31/12/2011

Revenue (including gross income from energy trading activities) 2,007,040 1,660,270

thereof electricity/gas 1,847,706 1,522,387

thereof heat 146,350 134,049

thereof miscellaneous 12,983 3,834

Cost of purchased energy from energy trading activities -1,002,424 -705,699

Revenue (including net income from energy trading activities) * (1) 1,004,615 954,571

Other income (2) 71,188 44,802

Cost of materials and supplies, and of other purchased services * (3) -659,150 -648,401

Personnel expenses (4) -147,568 -124,302

Amortisation, depreciation and impairment (5) -96,991 -62,593

Other expenses (6) -74,290 -66,243

Operating result 97,803 97,834

Interest income (7) 2,399 2,274

Interest cost (7) -21,268 -18,348

Other investment result (8) 29,273 32,083

Earnings from investments accounted for using the equity method (12) 3,093 -217

Earnings before income taxes 111,300 113,627

Income taxes (9) -15,074 -21,736

Consolidated net profit 96,226 91,890

Attributable to non-controlling interests -37 39

Attributable to the equity holders of the parent company 96,263 91,851

* The disclosure of energy trading activities in the income statement was adjusted in these financial statements. As a result the revenue item

corresponds to the revenue from all divisions less cost of purchased energy from energy trading activities. Accordingly, the cost of materials and

supplies and of other purchased services item was reduced compared to 2011.


Annual report 2012 | Statement of comprehensive income of the KELAG Group

4

2. Statement of comprehensive income of the

KELAG Group

EUR k Note

1/1 –

31/12/2012

1/1 –

31/12/2011

Consolidated net profit 96,226 91,890

Amounts that are not reclassified in future periods to the

income statement -12,627 -278

Actuarial gains and losses (22) -16,836 -371

Tax effects on amounts that are not reclassified in future periods

to the income statement 4,209 93

Amounts that might be reclassified in future periods to the

income statement 102 -380

Gains or losses from exchange differences -61 -436

Unrealised gains/losses from the disposal of available-for-sale

financial instruments 486 -13

Hedges -356 0

Tax effects on amounts that will be reclassified in future periods

to the income statement 33 69

Other comprehensive income (after income taxes) -12,525 -659

Total comprehensive income 83,700 91,232

Attributable to the equity holders of the parent company 83,776 91,193

Attributable to non-controlling interests -75 39


Annual report 2012 | Statement of financial position of the KELAG Group

5

3. Statement of financial position of the KELAG Group

EUR k Note 31/12/2012 31/12/2011

Non-current assets 1,441,923 1,322,164

Intangible assets (10) 303,050 289,912

Property, plant and equipment (11) 965,347 858,456

Investments accounted for using the equity method (12) 6,878 12,130

Other interests in other entities (13) 124,943 125,884

Other securities and book-entry securities (14) 29,693 28,071

Other non-current receivables and assets (15) 6,179 6,804

Deferred tax assets (16) 5,832 907

Current assets 381,597 184,851

Inventories (17) 17,323 18,158

Trade receivables and other receivables and assets (18) 113,470 79,078

Cash and cash equivalents (19) 250,804 87,614

Assets 1,823,520 1,507,015

Equity 644,840 587,956

Equity attributable to the equity holders of the parent company (20) 638,730 584,998

Equity attributable to non-controlling interests (21) 6,110 2,958

Non-current liabilities 912,027 698,983

Financial liabilities (22) 454,245 264,116

Provisions (23) 300,214 273,457

Deferred tax liabilities (16) 0 6,028

Construction cost subsidies (24) 93,200 93,939

Other liabilities (25) 64,368 61,442

Current liabilities 266,653 220,076

Financial liabilities (26) 3,700 13,403

Current tax provisions (27) 113 53

Other provisions * (27) 43,656 41,039

Trade payables and other liabilities * (28) 219,184 165,580

Equity and liabilities 1,823,520 1,507,015

* With regard to the reclassification from other provisions to trade payables and other liabilities in the comparative period 2011, reference is made to

the explanations in the section “Summary of significant accounting policies.”


Annual report 2012 | Statement of changes in equity of the KELAG Group

6

4. Statement of changes in equity of the KELAG Group

EUR k Cap

ital

sto

ck

Cap

ital re

se

rve

s

Ac

cu

mu

late

d p

rofi

ts/lo

sse

s

Exch

an

ge

dif

fere

nce

s

Ac

tuari

al g

ain

s a

nd

lo

ss

es

Av

ailab

le-f

or-

sale

fin

an

cia

l

ins

tru

men

ts

Hed

gin

g r

es

erv

e

To

tal

Eq

uit

y a

ttri

bu

tab

le t

o n

on

-

co

ntr

ollin

g in

tere

sts

To

tal e

qu

ity

As of 1 January 2011 58,160 263 493,269 -71 -27,343 -442 0 523,836 2,923 526,758

Other comprehensive income 0 0 0 -436 -371 -13 0 -820 0 -820

Tax on the above 0 0 0 66 93 3 0 162 0 162

Other comprehensive income after

income taxes 0 0 0 -371 -278 -10 0 -659 0 -659

Consolidated net profit 0 0 91,851 0 0 0 0 91,851 39 91,890

Total comprehensive income 0 0 91,851 -371 -278 -10 0 91,193 39 91,232

Dividends 0 0 -30,000 0 0 0 0 -30,000 -4 -30,004

Other income and expenses

recognised without effect on profit or

loss 0 0 -31 0 0 0 0 -31 0 -31

As of 31 December 2011 58,160 263 555,090 -442 -27,622 -452 0 584,998 2,958 587,956

As of 1 January 2012 58,160 263 555,090 -442 -27,622 -452 0 584,998 2,958 587,956

Other comprehensive income 0 0 0 -61 -16,836 486 -305 -16,716 -51 -16,767

Tax on the above 0 0 0 0 4,209 -56 76 4,229 13 4,242

Other comprehensive income after

income taxes 0 0 0 -61 -12,627 430 -229 -12,487 -38 -12,525

Consolidated net profit 0 0 96,263 0 0 0 0 96,263 -37 96,226

Total comprehensive income 0 0 96,263 -61 -12,627 430 -229 83,776 -75 83,700

Dividends 0 0 -30,000 0 0 0 0 -30,000 0 -30,000

Acquisition of a subsidiary 0 0 0 0 0 0 0 0 2,869 2,869

Other income and expenses

recognised without effect on profit or

loss 0 0 -43 0 0 0 0 -43 358 314

As of 31 December 2012 58,160 263 621,309 -503 -40,249 -22 -229 638,730 6,110 644,840


Annual report 2012 | Statement of cash flows of the KELAG Group

7

5. Statement of cash flows of the KELAG Group

EUR k Note 2012 2011

Earnings before income taxes 111,300 113,627

Non-cash adjustment to reconcile earnings before income taxes to net cash flow

Amortisation, depreciation and impairment and reversal of impairment losses on

intangible assets and property, plant and equipment (5) 96,991 62,593

Impairment and reversal of impairment losses on financial assets including share

of profit/loss from investments accounted for using the equity method 652 1,317

Gain/loss on the disposal of property, plant and equipment, and securities 1,677 3,035

Interest cost (7) 21,268 18,348

Interest income (7) -2,399 -2,274

Sundry 1,029 82

Taxes paid -17,814 -12,439

Interest received 2,399 2,274

Changes in non-current provisions (23) 2,049 4,779

Changes in construction cost subsidies (24) -177 -2,241

Cash flow from operating activities 216,973 189,100

Changes in inventories (17) 1,144 -784

Changes in trade receivables and other receivables and assets (18) -18,028 10,765

Changes in trade payables and other liabilities (28) 20,775 8,874

Changes in current provisions (27) 2,766 -13,871

Cash flow from operating activities* 223,629 194,083

Investments in intangible assets and property, plant and equipment

(10)

(11) -144,021 -168,961

Proceeds from the disposal of intangible assets and property, plant and equipment 569 2,266

Acquisition of subsidiaries, net of cash acquired -8,351 -14,015

Investments in other securities and book-entry securities -24,751 -520

Disposals of financial assets 23,236 2,500

Cash flow from investing activities -153,319 -178,730

Repayment and proceeds from financial liabilities * 138,942 -395

Interest paid -16,480 -14,098

Cash received and paid for non-current loans and financial receivables 364 693

Profit distribution -30,000 -30,004

Cash received from other shareholders 55 0

Cash flows from financing activities 92,881 -43,805

Changes in cash and cash equivalents 163,190 -28,450

Cash and cash equivalents at the beginning of the financial year (19) 87,614 116,065

Cash and cash equivalents at the end of the financial year (19) 250,804 87,614

Changes in cash and cash equivalents according to the statement of financial

position (19) 163,190 -28,450

* Please refer to 6.8


Annual report 2012 | Notes

8

I.a NOTES TO THE CONSOLIDATED

FINANCIAL STATEMENTS

1. The company

The KELAG Group is one of the leading energy service providers in Austria. The

company operates throughout Austria in the fields of electricity and natural gas, focusing

on Carinthia. The subsidiary KELAG Wärme GmbH operates successfully in the heat

business throughout Austria. The grids in Carinthia (electricity and natural gas) are

operated by the subsidiary KNG-Kärnten Netz GmbH: The hydroelectric and wind power

activities and energy trading outside Austria are bundled at KI-KELAG International

GmbH.

The KELAG Group has decades of experience in the production and distribution of

energy.

2. Accounting policies

KELAG-Kärntner Elektrizitäts-Aktiengesellschaft (KELAG), with registered office at

Arnulfplatz 2, A-9020 Klagenfurt am Wörthersee, commercial register court: regional and

commercial court Klagenfurt 99133 i, and its subsidiaries form the KELAG Group for

which the following IFRS financial statements for 2012 were prepared. These have an

exempting effect pursuant to Sec. 245a UGB (Austrian Commercial Code).

Information on its ultimate parent is presented in Note 6.9.

2.1. General information

The consolidated financial statements of KELAG were prepared in accordance with

International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The consolidated financial statements are generally prepared in accordance with the

historical cost convention. This does not apply to derivative financial instruments and

available-for-sale financial assets which are measured at fair value.

The annual financial statements of entities included in the consolidated financial

statements (whether fully consolidated or accounted for using the equity method) have



9

been prepared on the basis of uniform accounting policies. The end of the reporting

period for all fully consolidated entities is 31 December 2012.

The consolidated financial statements are prepared in thousands of euro (EUR k)

(income statement, statement of comprehensive income, statement of financial position,

statement of cash flows and statement of changes in equity) and millions of euro

(EUR m) (notes). Rounding differences may arise from totalling rounded amounts and

percentages using automatic calculation tools.

The addition or presentation of rounded figures can lead to rounding differences.

Classification as current/non-current in the statement of financial position has been

performed pursuant to IAS 1.60 et seq.



10

2.2. Scope of consolidation and consolidation methods

KELAG’s

share-

holding

%

Capital

stock/share

capital

EUR k

Consolidation

method*

1. KNG-Kärnten Netz GmbH, Klagenfurt, Austria 100.00 35 FC

2. KELAG Wärme GmbH, Villach, Austria 100.00 1,820 FC

2.1. EKO-TOPLOTA Energetika d.o.o., Ljubljana, Slovenia** 100.00 9 FC

2.2. SWH – Strom und Wärme aus Holz, Heizwerk Errichtungs-

Betriebs GmbH, Purkersdorf, Austria** 50.00 200 EQ

2.2.1. Biowärme Imst GmbH, Imst, Austria** 45.00 100 EQ

2.2.2. SBH Biomasseheizkraftwerk GmbH, Enns, Austria** 25.50 36 EQ

2.3. Biofernwärme Fürstenfeld GmbH, Fürstenfeld, Austria** 50.00 218 EQ

2.4. KWH Kraft & Wärme aus Holz GmbH, St. Gertraud, Austria** 26.00 36 EQ

2.5. Bio-Teplo Czechia s.r.o., Znaim, Czech Republic** 100.00 7 FC

2.6. BES-BioEnergie für Spittal GmbH, Spittal/Drau, Austria** 51.00 35 FC

3. KELAG Finanzierungsvermittlungs GmbH, Klagenfurt,

Austria** 100.00 254 FC

4. KI-KELAG International GmbH, Klagenfurt, Austria 100.00 10,000 FC

4.1. Interenergo d.o.o., Laibach, Slovenia** 100.00 10,200 FC

4.1.1. Interenergo d.o.o. Zagreb, Zagreb, Coatia** 100.00 41 FC

4.1.2. EHE d.o.o. Banja Luka, Banja Luka, Bosnia and

Herzegovina** 100.00 1,001 FC

4.1.3. Interenergo d.o.o. Sarajevo, Sarajevo, Bosnia and

Herzegovina** 100.00 511 FC

4.1.4. PLC Interenergo d.o.o. Beograd, Belgrade, Serbia** 100.00 533 FC

4.1.5. Hidrowatt d.o.o. Beograd, Belgrade, Serbia** 80.00 0 FC

4.1.6. Interenergo Makedonija d.o.o.e.l., Skopje, Macedonia** 100.00 115 FC

4.1.7. IEP energija d.o.o. Gornji Vakuf-Uskoplje, Gornji Vakuf

Uskoplje, Bosnia and Herzegovina** 100.00 1 FC

4.1.8. LSB Elektrane d.o.o. Banja Luka, Banja Luka, Bosnia and


4.1.9. Interhem d.o.o. Banja Luka, Banja Luka, Bosnia and


4.1.10. Inter-Energo d.o.o. Gornji Vakuf, Gornji Vakuf, Bosnia and


4.2. Windfarm MV I s.r.l., Bucharest, Romania** 100.00 2,010 FC

4.3. Lumbardhi Beteiligungs GmbH, Klagenfurt, Austria** 90.00 35 FC

4.3.1. KelKos Energy Sh.p.k., Pristina, Kosovo** 90.00 0 FC

4.4. Windfarm Balchik 1 OOD, Sofia, Bulgaria** 52.00 3 FC



4.7. KelaVENT Charlie SRL, Bucharest, Romania** 99.99 393 FC

4.8. KelaVENT Echo SRL, Bucharest, Romania** 99.99 531 FC

5. Wärmeversorgung Arnoldstein Errichtungs- und

Betriebsgesellschaft mbH, Arnoldstein, Austria 99.00 36 FC

6. Kraftwerk Waben GmbH, Klagenfurt, Austria 51.00 36 FC



11

KELAG’s

share-

holding

%

Capital

stock/share

capital

EUR k

Consolidation

method*

7. Kraftwerksgesellschaft Tröpolach GmbH, Klagenfurt, Austria 51.00 35 FC

8. Kärntner Restmüllverwertungs GmbH, Arnoldstein, Austria 85.74 44 FC

9. Waldensteiner Kraftwerke GmbH, Waldenstein, Austria 40.00 36 EQ

10. Waldensteiner Kraftwerke GmbH & Co KG, Waldenstein,

Austria (limited partner‟s interest) 40.00 7 EQ

11. Stadtwerke Kapfenberg GmbH, Kapfenberg, Austria 35.00 2,000 EQ

* FC = full consolidation, EQ = equity method

** Indirect interest

The parent company is KELAG-Kärntner Elektrizitäts-Aktiengesellschaft. The

consolidated financial statements include all entities (“subsidiaries”) that are controlled

(controlling influence) by the parent company by means of full consolidation. Controlling

influence is where the parent company is able, whether directly or indirectly, to determine

the entity‟s financial and operating policy. The inclusion of a subsidiary begins when

controlling influence is acquired and ends when controlling influence is lost. The financial

statements of the subsidiaries are prepared for the same reporting period as the parent

company, using consistent accounting policies. Losses within a subsidiary are attributed

to the non-controlling interest even if that results in a deficit balance.

A change in the ownership interest of a subsidiary without involving the loss of control is

accounted for as an equity transaction. If the parent company loses its controlling

influence over a subsidiary, it takes the following steps:

Derecognises the assets (including goodwill) and liabilities of the subsidiary

Derecognises the carrying amount of any non-controlling interest

Derecognises the cumulative translation differences, recorded in equity

Recognises the fair value of the consideration received

Recognises the fair value of any investment retained

Recognises any surplus or deficit in profit or loss

Reclassifies the parent‟s share of components previously recognised in other

comprehensive income to profit or loss or retained earnings, as appropriate under

IFRSs.

In addition to KELAG as parent company, the consolidated financial statements include

30 subsidiaries (prior year: 24) and 8 associates (prior year: 9).



12

31/12/2012 31/12/2011

Scope of consolidation

Full

consolidation

Equity

method

Full

consolidation

Equity

method

As of the beginning of the reporting

period 25 9 20 11

Included in the financial statements

for the first time in the reporting

period 8 0 6 0

Merged in the reporting period -2 0 0 0

Deconsolidated in the reporting

period 0 -1 -1 -2

As of the end of the reporting period 31 8 25 9

of which Austrian entities 11 8 9 9

of which non-Austrian entities 20 0 16 0

Alternative Energie Salzburg GmbH and Biowärme Friesach GmbH were merged with

KELAG Wärme GmbH at the beginning of financial year 2012.

For more details of business combinations, reference is made to Section 5. “Notes to the

statement of financial position”.

Entities on which the parent company can exercise significant influence, whether directly

or indirectly, (“associates”) and shares in joint ventures are accounted for using the equity

method. The same consolidation principles are applied. The financial statements of all

material entities accounted for using the equity method are prepared using uniform

accounting policies.

Under the equity method, the investment in the associate is carried in the statement of

financial position at cost plus post acquisition changes in the Group‟s share of net assets

of the associate. Goodwill relating to the associate is included in the carrying amount of

the investment and is neither amortised nor individually tested for impairment.

The income statement reflects the Group‟s share of the results of operations of the

associate. Where there has been a change recognised directly in the equity of the

associate, the Group recognises its share of any changes and discloses this, when

applicable, in the statement of changes in equity. Unrealised gains and losses resulting

from transactions between the Group and the associate are eliminated to the extent of

the interest in the associate. Losses by an associate exceeding the Group‟s share in this

associate are only recognised to the extent that the Group has entered into legal or

constructive obligations or makes payments on behalf of the associate.

The share of profit of an associate is shown on the face of the income statement. This is

the profit attributable to equity holders of the associate and therefore is profit after tax and

non-controlling interests in the subsidiaries of the associates.

Investments in

associates and in joint

ventures



13

After application of the equity method, the Group determines whether it is necessary to

recognise an additional impairment loss on the Group‟s investment in its associate. The

Group determines at each reporting date whether there is any objective evidence that the

investment in the associate is impaired. If this is the case the Group calculates the

amount of impairment as the difference between the recoverable amount of the associate

and its carrying value and recognises the amount in the „share of profit of an associate‟ in

the income statement.

Upon loss of significant influence over the associate, the Group measures and

recognises any retaining investment at its fair value. Any difference between the carrying

amount of the associate upon loss of significant influence and the fair value of the

retaining investment and proceeds from disposal is recognised in profit or loss under

earnings from investments accounted for using the equity method.

Intercompany transactions, receivables, liabilities and intercompany profits are

eliminated. The reversal of impairment losses and the impairment losses recognised on

investments in consolidated entities in separate financial statements are reversed.

The acquisition of subsidiaries and businesses is accounted for using the acquisition

method. The cost of an acquisition is the aggregate of the consideration transferred,

measured at acquisition date fair value and the amount of any non-controlling interest in

the acquiree. The identifiable assets, liabilities and contingent liabilities of the acquired

entity that satisfy the recognition criteria of IFRS 3 Business combinations are recognised

at their fair values as of the acquisition date. Goodwill is initially measured at cost being

the excess of the aggregate of the consideration transferred and the amount recognised

for the non-controlling interest over the net identifiable assets acquired and liabilities of

the Group assumed. If, upon reassessment, the fair value of the net assets exceeds total

compensation, the difference is recognised immediately through profit or loss. The share

of non-controlling interests in the acquired entity is measured as of acquisition date at its

shares in the net fair value of the assets, liabilities and contingent liabilities. Acquisition-

related costs incurred are expensed.

When the Group acquires a business, it assesses the financial assets and liabilities

assumed for appropriate classification and designation in accordance with the contractual

terms, economic circumstances and pertinent conditions as of the acquisition date.

If the business combination is achieved in stages, the acquisition-date fair value of the

acquirer‟s previously held equity interest in the acquiree is remeasured to fair value at the

acquisition date through profit or loss. The fair value of the shares held to date are

included in the cost of the business combination to determine the goodwill.

Any contingent consideration to be transferred by the acquirer is recognised at fair value

at the acquisition date. Subsequent changes to the fair value of the contingent

consideration which is deemed to be an asset or liability is recognised in accordance with

Consolidation methods

Business combinations

and incorporations



14

IAS 39 either in profit or loss or as a change to other comprehensive income. If the

contingent consideration is classified as equity, it is not remeasured and its subsequent

settlement is accounted for within equity.



15

2.3. Accounting policies

For the preparation of these consolidated financial statements all mandatory

amendments to existing and new IAS and IFRSs as of 31 December 2012 as well as to

IFRIC and SIC interpretations as adopted by the European Union were applied.

Those IAS and IFRSs as well as those IFRIC and SIC interpretations already adopted by

the European Union but not yet mandatory for the financial year 2012 are not early

adopted. One exception to this is the early adoption of IAS 1.

The following standards and interpretations were applied for the first time for the financial

year 2012:

Newly applied IFRSs/IFRICs Effective as of

IAS 1 Amendments: Presentation of Items of Other Comprehensive Income 1 July 2012

IAS 12 Amendments: Deferred Taxes/Recovery of Underlying Assets 1 January 2012

IFRS 1 Amendments: Severe Hyperinflation and Removal of Fixed Dates 1 July 2011

IFRS 7 Amendments: Financial Instruments – Disclosures 1 July 2011

Pursuant to the amendment in IAS 1 “Presentation of Financial Statements” entities must

classify the items presented in other comprehensive income into two categories – items

that are subsequently posted through profit and loss (recycling) and those that are not.

The amendment also affects the KELAG Group‟s statement of comprehensive income

and was already implemented in the 2012 financial statements.

The amendments to IAS 12 provide an exception to the existing regulation on the

measurement of deferred tax assets and liabilities for certain non-financial assets

measured at fair value. This essentially affects entities that measure investment

properties, property, plant and equipment and intangible assets at fair value in their

statement of financial position and originate from countries that stipulate different tax

rates for investment income and gains on disposal. It can be assumed that the KELAG

Group will not be affected.

The amendment to IFRS 1 relates to entities whose functional currency is subject to

severe hyperinflation. As the KELAG Group is not a first-time adopter of IFRSs, this

amendment is not relevant.

New accounting policies



16

The amendments to IFRS 7 “Financial Instruments – Disclosures” relate to additional

mandatory disclosures when derecognising financial assets. In contrast to the previous

provisions, where financial assets are not fully derecognised despite the rights being

transferred or there being an obligation to transfer cash inflows there is a requirement to

make additional disclosures on the newly created liabilities. This includes in particular

disclosure as to whether the financial assets that continue to be carried can be used

without restriction or the acquiring party has an entitlement to the financial asset. The

amendments affect entities that transfer financial assets to another party through sale,

securitisation transaction, factoring or another form of transaction. As none of these kinds

of transaction have been performed within the KELAG Group to date, no new disclosure

requirements are expected to arise.

IFRS/IFRIC already adopted by EU but not yet applicable

Prospective

effective date

IAS 19 Amendment: Employee Benefits 1 January 2013

IAS 27 Amendments: Separate Financial Statements 1 January 2014

IAS 28 Amendments: Investments in Associates 1 January 2014

IAS 32 Amendments: Financial Instruments – Offsetting Financial

Assets and Financial Liabilities

1 January 2014

IFRS 1 Amendments: First-time Adoption of International Financial

Reporting Standards

1 January 2013

IFRS 7 Amendment: Disclosure – Offsetting of Financial Assets and

Liabilities

1 January 2013

IFRS 10 Consolidated Financial Statements 1 January 2014

IFRS 11 Joint Arrangements 1 January 2014

IFRS 12 Disclosures of Interests in Other Entities 1 January 2014

IFRS 13 Fair Value Measurement 1 January 2013

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013

There have been material amendments to IAS 19 “Employee Benefits” that relate to the

recognition and measurement of the expenses for defined benefit plans and post-

employment benefits. Subsequently, the mandatory disclosures on employee benefits

also change. Actuarial gains and losses must be recognised immediately in other

comprehensive income. Recognition using the corridor approach and immediate

recognition in profit and loss, which were permissible in the past, are no longer allowed.



17

The amended standard will in future affect the net benefit expense (net of income), as the

planned income from plan assets is determined using the same interest rate as that used

to discount the defined benefit obligation. Apart from a change in the disclosures in the

notes, this will not affect the KELAG Group as it had already converted to the method

allowed under the amended version of IAS 19 in 2010.

IAS 27 “Consolidated and Separate Financial Statements” has been renamed and in

future only contains provision on separate financial statements. The existing guidelines

for separate financial statements remain unchanged, however.

IAS 28 “Investments in Associates” has been amended such that the disclosure

requirements it contained for investments in associates have been transferred to IFRS 12

and are no longer part of IAS 28.

The amendments to IAS 32 “Financial Instruments: Presentation” do not concern the

provisions relating to the offsetting of financial instruments, but rather clarify certain

terms; there are therefore no effects on the KELAG Group.

The amendments to IFRS 1 “First-time Adoption of International Financial Reporting

Standards” concern government loans granted at below-market rates of interest. As the

KELAG Group is not a first-time adopter of IFRSs, the amendment does not affect the

consolidated financial statements.

Pursuant to the amendment of IFRS 7 “Offsetting of Financial Assets and Financial

Liabilities”, entities have to disclose information on rights to set-off and related

arrangements (e.g., collateral arrangements). This is intended to provide users of an

entity‟s financial statements information to evaluate the effect of netting arrangements on

the entity‟s financial position. The new disclosures are required for all recognised financial

instruments that were netted under IAS 32 “Financial Instruments: Presentation.” The

disclosures apply to the financial instruments used subject to enforceable master netting

agreements or similar agreements, irrespective of whether they are netted in accordance

with IAS 32. The amendment is effective for the first time for fiscal years beginning on or

after 1 January 2013, and is not expected to have any effect on the Group‟s financial

position and performance.

IFRS 10 “Consolidated Financial Statements” will replace IAS 27 “Consolidated and

Separate Financial Statements” and SIC 12 “Consolidation – Special Purpose Entities”; it

contains guidelines on control and consolidation. The definition of control is amended

such that the criterion of control is met where the controlling entity is able to exercise

control over the relevant activities, leading to variable returns from the entity. Returns can



18

be positive, negative or both. The provisions for consolidation are not affected. Within the

KELAG Group it will be necessary to review each individual equity interest with a view

reference to the new definition of control, but it may be assumed that there will be no

material changes.

According to IFRS 11 “Joint Arrangements” there will be two types of joint arrangement in

future: joint operations and joint ventures. A joint operation is a joint arrangement where

direct rights to the assets and liabilities are transferred to the partner entities in this joint

arrangement. A partner entity in a joint operation records its share on the basis of its

share in the joint operation instead of on the basis of the interest in the joint arrangement.

A partner entity in a joint venture on the other hand does not have any rights to individual

assets or liabilities. Partner entities in a joint venture have a share in the net assets and

thus in the results of the activities performed by the joint venture. Joint ventures are

accounted for using the equity method; proportionate consolidation is now prohibited by

IFRS 11. The KELAG Group must review its existing or new agreements in order to

decide whether it invested in a joint arrangement or a joint venture, pursuant to the new

standard.

IFRS 12 “Disclosure of Interests in Other Entities” stipulates the disclosures that have to

be made by an entity on its interests in other entities. According to the new standard,

entities must make disclosures that enable the users of the financial statements to assess

the nature of the entity‟s interest in subsidiaries, associates, joint arrangements and

unconsolidated structured entities (special purpose vehicles) and the associated risks

and financial impact.

IFRS 13 “Fair Value Measurement” specifies how the fair value is measures and expands

the disclosures on fair value. The fair value is uniformly defined as the price that would be

received to sell an asset or paid to transfer a liability in an orderly transaction between

market participants at the measurement date. The standard, however, does not contain

any details when fair value is to be applied. As almost all entities, including the KELAG

Group, perform measurement at fair value, the new requirements have to be met.

However, it is mainly the extended disclosure requirements that will affect the KELAG

Group.

The new IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” is not

relevant for KELAG.



19

Summary of significant accounting policies

Assets and liability items that are expected to be recovered or settled within the normal

operating cycle are reported as current items.

Assets and liability items that are not expected to be recovered or settled within the

normal operating cycle are reported as non-current items.

In these financial statements, an amount of about EUR 6.4m was reclassified in the

comparative period 2011 from “Other current provisions” to the item of the statement of

financial position “Trade payables and other liabilities.” Accrued vacation and time

accounts of employees fall within the scope of the “hierarchy of uncertainty” pursuant to

IAS 37.11. Due to a lack of disclosure guidance in IAS 37, they are frequently recorded in

the other liabilities.

The disclosure of energy trading activities in the income statement was adjusted in these

financial statements. As a result the revenue item corresponds to the revenue from all

divisions less cost of purchased energy from energy trading activities. This provides the

users of the financial statements improved comparability of financial statements within the

energy industry.

When accounting for business combinations, differences can emerge between the

consideration and the remeasured net assets. If the difference is negative, the calculation

of cost and the purchase price allocation must be reassessed.

Under IFRSs, any positive difference is recognised as goodwill. Pursuant to IFRS 3, the

goodwill recognised in the statement of financial position is not amortised but must be

tested for impairment at least once a year. For this purpose, the goodwill must be

allocated to those cash-generating units that are expected to benefit from the synergies

resulting from a business combination. These cash-generating units correspond to the

lowest organisational level at which management monitors the goodwill for internal

management purposes. The recoverability of goodwill is tested by comparing the

recoverable amount of a cash-generating unit with its carrying amount including goodwill.

If the recoverable amount falls below the carrying amount of the cash-generating unit,

goodwill must be written down in a first step. If there is any further need for an impairment

charge, the carrying amounts of the other assets must be reduced proportionately.

Impairment losses charged on goodwill cannot be reversed in subsequent periods.

In the KELAG Group, the annual impairment test of goodwill at the level of the cash-

generating units takes place in the fourth quarter of the reporting period based on the

mid-range planning.

Where goodwill forms part of a cash-generating unit and part of the operation within that

unit is disposed of, the goodwill associated with the operation disposed of is included in

Current versus non-

current classification

Reclassification of

financial statements

items

Goodwill



20

the carrying amount of the operation when determining the gain or loss on disposal of the

operation. Goodwill disposed of in this circumstance is measured based on the relative

values of the operation disposed of and the portion of the cash-generating unit retained.

Acquired intangible assets are recorded at amortised cost. Intangible assets acquired as

part of a business combination are recognised separately from goodwill if they meet the

definition as an intangible asset and their fair value can be reliably determined. The cost

of such intangible assets corresponds to their fair value as of the acquisition date. All of

these assets have finite useful lives, and are thus amortised using the straight-line

method. Following initial recognition, intangible assets are carried at cost less any

accumulated amortisation and accumulated impairment losses.

Gains or losses arising from derecognition of an intangible asset are measured as the

difference between the net disposal proceeds and the carrying amount of the asset and

are recognised in the income statement when the asset is derecognised.

As long as intangible assets are not yet available for use, they must be tested for

impairment annually.

Property, plant and equipment is stated at cost, net of accumulated depreciation and/or

accumulated impairment losses, if any. Such cost includes the cost of replacing part of

the property, plant and equipment and borrowing costs for long-term construction projects

if the recognition criteria are met. When significant parts of property, plant and equipment

are required to be replaced at intervals, the Group recognises such parts as individual

assets with specific useful lives and depreciation, respectively. Likewise, when a major

inspection is performed, its cost is recognised in the carrying amount of the plant and

equipment as a replacement if the recognition criteria are satisfied. All other repair and

maintenance costs are recognised in the income statement as incurred.

An item of property, plant and equipment is derecognized upon disposal or when no

future economic benefits are expected from its use or disposal. Any gain or loss arising

on derecognition of the asset (calculated as the difference between the net disposal

proceeds and the carrying amount of the asset) is included in the income statement when

the asset is derecognised.

The cost of self-constructed assets includes direct production and materials costs and an

appropriate portion of materials and production overheads less any idle capacity costs.

The amortisation of intangible assets and depreciation of property, plant and equipment

subject to depletion are based on the expected useful lives in the Group and begin when

the asset is ready for use. The expected useful lives, residual values and amortisation

and depreciation methods are assessed annually and all necessary changes in estimates

are taken into account prospectively. Amortisation and depreciation is calculated

according to the following uniform group useful lives:

Property, plant and

equipment and

intangible assets



21

Useful lives Years

Intangible assets

Water usage rights 0-90

Other rights of use 0-50

Software 4-10

Property, plant and equipment

Office and factory buildings 33-55

Plant and machinery 10-60

Other property, plant and equipment 1-10

Wind turbines 12-16

The gain or loss on disposal or closure of an item of property, plant and equipment is

determined as the difference between the net disposal proceeds and the carrying amount

of the asset, and is posted to profit or loss.

Borrowing costs directly attributable to the acquisition, construction or production of an

asset that necessarily takes a substantial period of time to get ready for its intended use

or sale are capitalised as part of the cost of the respective asset. This is done in line with

the Group‟s accounting guidelines. All other borrowing costs are expensed in the period

they occur. Borrowing costs consist of interest and other costs that an entity incurs in

connection with the borrowing of funds. The Group capitalises borrowing costs for all

eligible assets where construction was commenced on or after 1 January 2009. The

financing cost of the investment allocable to the first half of 2012 comes to 4.5% and that

allocable to the second half of the year comes to 4.0% (in the prior year for the full

financial year: 4.5%).

The determination of whether an arrangement is, or contains, a lease is based on the

substance of the arrangement at inception date, whether fulfilment of the arrangement is

dependent on the use of a specific asset or assets or the arrangement conveys a right to

use the asset, even if that right is not explicitly specified in an arrangement.

Assets held under finance leases are written down over their expected useful lives in the

same way as assets owned by the Group or, if shorter, over the term of the underlying

lease. Initial recognition of the assets is at the present values of the minimum lease

payments (or their fair values, if lower) in non-current assets in the statement of financial

position of the KELAG Group. On the liabilities side, the lease liability is recognised and

rolled forward in subsequent periods using the effective interest method.

All other leases where the KELAG Group is the lessee are accounted for as operating

leases. The lease payments are expensed on a straight-line basis over the term of the

lease.

If there is an indication of impairment of non-financial assets that fall within the scope of

IAS 36, the recoverability of the carrying amounts is tested (impairment test). Regardless

of whether or not there is an indication of impairment, an annual impairment test must be

Borrowing costs

Leases

Recoverability of non-

financial assets



22

carried out for goodwill, intangible assets with indefinite useful lives and assets that are

not yet ready for use. An impairment charge has to be recognised if the carrying amount

exceeds the recoverable amount of the asset. The recoverable amount is the higher of an

asset‟s value in use or fair value less costs to sell. The value in use is calculated based

on an income-based approach using the discounted cash flow method (DCF method). To

this end, the relevant cash flows are derived based on management‟s financial plans. The

discount rate is the pre-tax rate that reflects the current market assessments of the time

value of money and the specific risks, taking into account the capital structure of the

asset. An impairment loss must be recognised at the amount by which the carrying

amount exceeds the recoverable amount. If the reasons for impairment no longer apply in

subsequent periods, impairment losses are reversed (except in the case of goodwill).

Other interests in other entities are recognised at cost less impairment losses if it is not

possible to derive the fair value using comparable transactions for the corresponding

period and measurement was not performed by discounting the expected cash flows

because cash flows could not be reliably determined.

In accordance with IAS 28, investments accounted for using the equity method are

initially recognised at cost and subsequently recognised according to the amortised

interest in net assets. The carrying amounts of the investment are increased or

decreased by the share of the KELAG Group in the earnings for the period and in other

comprehensive income as well as by distributions, material elimination of intercompany

profits and rolled forward fair value adjustments from share acquisitions recognised in

accordance with IFRS 3. Goodwill included therein in accordance with IFRS 3 is not

subject to amortisation and, in accordance with IAS 28, is not reported separately.

As of the respective reporting date, other interests in other entities are checked for signs

of impairment as defined by IAS 39, and if necessary an impairment test is carried out in

accordance with IAS 36.

Recoverability is assessed by calculating the recoverable amount, which is the higher of

the value in use and fair value less costs to sell. The recoverable amount of the equity

investments is calculated primarily based on the concept of the fair value less costs to

sell. To determine the fair value less costs to sell, market-based approaches are favoured

over income-based approaches. The best information available must be used for the

measurement, which is the information that a company would use as of the reporting date

in connection with the sale of the asset at market conditions between willing, competent

and independent business partners. To determine value in use, the present value of the

estimated cash flows allocated to the KELAG Group and to be recorded by the associate

or joint venture as a whole in future is generally used. Alternatively, in accordance with

IAS 28, the proportionate present value of estimated future dividends and liquidation

proceeds can be used.

Other interests in other

entities and investments

accounted for using the

equity method

Recoverability of other

interests in other entities

and investments

accounted for using the

equity method



23

The securities and book-entry securities reported in the statement of financial position

mainly comprise securities and sovereign bonds. At the KELAG Group, securities are

classified as available for sale or, if the criteria of IAS 39 are satisfied, as held to maturity.

Securities are classified as available for sale if the entity has the positive intention and

ability to hold or use them to maturity. This category essentially comprises financial

instruments that are not loans or receivables, not held to maturity and not measured at

fair value through profit or loss.

They are measured at fair value, which is calculated based on market prices. Initial

measurement is performed on the settlement date. Changes in value are posted to other

comprehensive income (in equity) up until sale or any impairment losses in accordance

with IAS 39. In the event of a prolonged decline in fair value, impairment losses are

posted to profit or loss (see recoverability of financial assets). The gain or loss on sale is

posted to profit or loss. If an asset is impaired, the accumulated loss is reclassified to

finance cost in profit or loss and derecognised from the reserve for available-for-sale

financial assets.

If the fair value falls significantly or for a longer period, impairment losses are recognised

in profit or loss.

Acquisitions and sales are recognised on their settlement date. Interest income

calculated using the effective interest rate method is recognised in the financial result with

an effect on income.

Securities are classified as financial investments held to maturity if the Group has the

intention and ability to hold these to maturity.

After initial measurement, held-to-maturity investments are measured at amortised cost

using the effective interest method, less impairment. Amortized cost is calculated by

taking into account any discount or premium on acquisition and fees or costs that are an

integral part of the effective interest rate. The effective interest rate amortisation is

included in finance income in the income statement. The losses arising from impairment

are recognised in the income statement in finance costs.

The Group did not have any held-to-maturity investments in the fiscal years prior to

reporting period 2012. All sovereign bonds purchased in financial year 2012 were

classified as held-to-maturity investments.

Interest-bearing non-current receivables are allocated to the loans and receivables

category. These are recognised at amortised cost less any impairment losses using the

effective interest rate method. In the case of impairment, measurement is at the present

value of the repayments expected.

Other securities and

book-entry securities

Other non-current

receivables and assets



24

All trade receivables, receivables from affiliated non-consolidated entities and receivables

from other investees and investors are allocated to the loans and receivables category

and measured at amortised cost in accordance with IAS 39. If impairment losses are

expected, the items are recognised in the statement of financial position less impairment

losses for parts that are expected to be uncollectible.

Impairment losses adjusted on an item by item basis via allowance costs make sufficient

provisions for the expected default risks. Actual default leads to derecognition of the

receivables in question.

Other assets are recognised at cost loss impairment losses.

Current other receivables contain derivatives relating to energy. The derivative financial

instruments are recognised at fair value. The values of derivatives with a netting

agreement are offset and thus reported as net figures in the statement of financial

position. Other non-current and current receivables are carried at amortised cost. Any

impairment losses must also be recognised.

The carrying amounts of financial assets not carried at fair value through profit or loss are

tested on each reporting date as defined by IAS 39 for objective evidence of impairment

(such as significant financial difficulties of the debtor, a high probability of insolvency

proceedings against the debtor). If such evidence exists, the impairment losses to be

recognised are recorded in the income statement.

Natural gas inventories are measured using the FIFO method. Materials and supplies are

measured at the lower of cost or net realisable value on the reporting date. For

marketable inventories, this stems from the current market price. For all other inventories,

the net realisable value can be derived from the planned income less cost yet to be

incurred. Measurement is based on the moving average price method.

Services not yet invoiced and work in process are measured at cost, which comprises

direct production and materials costs as well as an appropriate portion of materials and

production overheads, taking any idle capacity costs into account.

The “Cash and cash equivalents” item in the statement of financial position comprises

cash in hand, bank balances and short-term highly liquid deposits that can be converted

into a fixed amount of cash at any time and are subject only to immaterial risks of

changes in value.

Cash and cash equivalents as reported in the statement of cash flows comprise the items

defined above.

Liabilities are recognised at fair value less transaction costs. A premium, debt discount or

other difference between the amount received and the repayment amount is spread over

Trade receivables and

other receivables and

assets

Recoverability of

financial assets

Inventories

Cash and cash

equivalents

Financial liabilities



25

the term of the financing using the effective interest method and recognised in the

financing result.

The provisions for current pensions, claims to future pensions and similar obligations are

calculated using the projected unit credit method in accordance with IAS 19. The Group

recognises actuarial gains and losses in full in the period in which they occur in other

comprehensive income. Such actuarial gains and losses are also immediately recognised

in other comprehensive income and are not reclassified to profit or loss in subsequent

periods.

Based on company agreements and individual contracts, there is an obligation to pay

pensions to certain employees under certain circumstances after they have retired.

Earmarked pension trust funds exist for these defined benefit obligations. To the extent

that these obligations have to be met by the pension trust fund, there is an obligation on

the part of the employer to make additional capital contributions. The plan assets are not

available to the creditors of the Group, nor can they be paid directly to the Group. Fair

value is based on market price information and, in the case of quoted securities, is the

published bid price.

Pension obligations are determined on the basis of actuarial reports. The biometrical

assumptions used were the “AVÖ 2008-P – Rechnungsgrundlagen für die

Pensionsversicherung – Pagler & Pagler” for employees. Apart from death and invalidity

or retirement upon reaching the imputed pension age, the actuarial experts did not take

any other reasons for leaving the company into account, such as employee turnover or

similar reasons.

The amount of the pension depends on the period of service at KELAG before payment

of a pension commences. The pension age taken as a basis for the calculations is the

earliest possible age at which (early) retirement is possible in accordance with the

relevant statutory regulations, taking transitional regulations into account. For female

employees with vested pension rights, the pension age taken as a basis for the

calculations was gradually increased in accordance with the “Bundesverfassungsgesetz

über unterschiedliche Altersgrenzen von männlichen und weiblichen Sozialversicherten”

(Austrian Federal Constitutional Law on Different Retirement Ages of Men and Women

under Social Security).

The pension trust invests the pension trust funds mainly in different investment funds,

observing the regulations of the PKG (Austrian Pension Fund Act).

Based on labour-law obligations, employees who commenced service (in Austria) on or

before 31 December 2002 receive a one-off severance payment if the employment

relationship is terminated by the employer or upon retirement. The amount of the

entitlement depends on the number of years served at the company and the

remuneration authoritative at the time the payment falls due. This obligation is calculated

Pension obligations and

statutory severance

payments



26

in accordance with the projected unit credit method with a savings period of 25 years

pursuant to IAS 19. Resulting actuarial gains and losses are also taken into account in

other comprehensive income.

For all (Austrian) employment relationships commencing after 31 December 2002,

employees no longer have any direct entitlement to statutory severance. For the

employees affected by this regulation, the employer pays a monthly amount of 1.53% of

the remuneration into a staff provision fund where the contributions are deposited on an

account of the employee. This severance model means that the employer is obliged only

to pay the regular contributions, and it is therefore recognised as a defined contribution

plan pursuant to IAS 19.

The calculations of the above provisions as of 31 December 2012 and 31 December 2011

are based on the following assumptions:

Actuarial assumptions 2012 2011

Pensions

Discount rate 3.50% 4.30%

Pension increases 1.50 – 2.00% 1.50 – 2.00%

Salary increases 2.00 – 3.00% 2.00 – 3.00%

Employee turnover None None

Pension age for women 56.5 – 62 56.5 – 62

Pension age for men 61.5 – 62 61.5 – 62

Expected long-term return on plan assets 3.50% 4.10%

Statutory severance payments

Discount rate 3.50% 4.30%

Salary increases 3.00% 3.00%

Employee turnover (depending on period of service at the company) None None

The provision for long-service awards is recognised in accordance with the same

actuarial assumptions as the provision for severance payments.

Other provisions are recognised in accordance with the regulations in IAS 37 if the

company has a legal or constructive obligation to a third party based on a past event and

it is probable that this obligation will lead to an outflow of resources. It must be possible to

make a reliable estimate of the amount of the obligation. If a reliable estimate cannot be

made, no provision is recognised. Provisions are stated at the amount needed to settle

the obligation and are not netted against any rights to reimbursement. The settlement

amount is calculated based on the best estimate with which a present obligation could be

settled or transferred to a third party on the reporting date. Future cost increases that are

foreseeable and probable as of the reporting date are taken into account.

Provisions for potential losses from onerous agreements are also included in KELAG‟s

consolidated financial statements in accordance with the regulations in IAS 37. The

Provisions



27

amount recognised in the statement of financial position reflects the amount of the

outflow of resources that cannot be avoided.

If there is a material difference between the present value of the provision calculated on

the basis of a customary market discount rate and its nominal value, the present value of

the obligation is recognised in the statement of financial position and any expense

incurred on unwinding the discount on the provision is recorded in the financing result.

KELAG has “Altersteilzeit” (special phased retirement scheme) models that give

employees the option to avail themselves of a subsidised model before reaching the age

for a pension entitlement under the ASVG (Austrian General Social Security Act) with

continued payment of their remuneration until they reach the statutory retirement age.

The projected unit credit method in accordance with IAS 19 is used to measure the

provision reported in the statement of financial position, and actuarial gains or losses are

recognised immediately in profit or loss (i.e., without using the corridor method). The

measurement parameters correspond more or less to those used for pension-related

obligations. The expenses to be recorded as a result are reported in the income

statement under salaries.

Trade payables and other liabilities are measured at amortised cost.

Current other liabilities contain derivatives relating to energy. The derivative financial

instruments are recognised at fair value. The values of derivatives with a netting

agreement are offset and thus shown as net figures in the statement of financial position.

Contingent liabilities are possible obligations to third parties or existing obligations that

will probably not lead to an outflow of resources or whose amount cannot be reliably

measured. Contingent liabilities are recognised in the statement of financial position only

if they were assumed as part of a business combination.

They are recognised at fair value. Subsequently, they are measured at the higher of:

the amount that would be recognised in accordance with the guidance for

provisions above (IAS 37) or

the amount initially recognised less, when appropriate, cumulative amortisation

recognised in accordance with the guidance for revenue recognition (IAS 18)

The volumes of contingent liabilities reported in the notes correspond to the potential

liability as of the end of the reporting period.

Government grants are recognised where there is reasonable assurance that the grant

will be received and all attached conditions will be complied with. When the grant relates

to an expense item, it is recognised as income over the period necessary to match the

Trade payables and

other liabilities

Contingent liabilities

Investment subsidies

and construction cost

subsidies



28

grant on a systematic basis to the costs that it is intended to compensate. Since 2004,

investment subsidies are offset against the corresponding cost.

Construction cost subsidies received are reported as a liability on the equity and liabilities

side of the statement of financial position and reversed over the useful lives of the items

of property, plant and equipment concerned.

Green certificates and CO2 allowances obtained without charge qualify as grants related

to income within the meaning of IAS 20. Pursuant to IAS 20.7, these are recognised

when there is assurance that the company will comply with the conditions attaching to

them and the grants will be received. In the special case of government grants of non-

monetary goods, the KELAG Group elects to record the fair value of the assets

concerned.

IFRIC 12 “Service Concession Arrangements” does not apply to the KELAG Group

because this interpretation gives guidance on the accounting by operators for public-to-

private service concession arrangements, and the hydroelectric power station in Kosovo,

to which the interpretation could possibly be applied, is a public-sector company in the

broader sense.

The income tax expense reported in the income statement for the past financial year

comprises the income tax calculated from the income liable to tax and the applicable tax

rate for the individual entities as well as the change in deferred tax liabilities and assets.

Current income tax assets and liabilities for the period are measured at the amount

expected to be recovered from or paid to the taxation authorities. The tax rates and tax

laws used to compute the amount are those that are enacted or substantively enacted by

the reporting date in the countries where the Group operates and generates taxable

income.

With a group and tax equalisation agreement dated 7 December 2004, KELAG formed a

tax group pursuant to Sec. 9 KStG (Austrian Corporate Income Tax Act) as a member

with KÄRNTNER ENERGIEHOLDING BETEILIGUNGS GMBH as the group parent.

Since 2005 and 2009 respectively, several new members from the Group were added to

this tax group. The group parent allocates the corporate income tax amounts caused by

the group members (calculated using the standalone method) to those group members

using tax allocations. The tax expense in the income statement of the group parent is

adjusted by means of the tax allocations.

Deferred taxes (future taxes) are calculated using the liability method prescribed in

IAS 12 for all temporary differences between the carrying amounts of the items in the

IFRS consolidated financial statements and the tax amounts for the individual entities.

The probable realisable tax benefit from existing unused tax losses is also included in the

calculation if this can be offset against taxable profits in the future. Deferred tax assets

Emissions allowances

Service concession

arrangements

Income taxes



29

and tax liabilities are netted if there is a legally enforceable right to offset current tax

assets with current tax liabilities and if they relate to income taxes levied by the same

taxation authority. Goodwill resulting from first-time consolidation of subsidiaries does not

lead to deferred taxes. By contrast, temporary differences that result or change in

subsequent periods as a result of the ability to amortise goodwill for tax purposes are

taken into account accordingly when calculating the deferred taxes.

The income tax rates to be used to calculate deferred taxes are the rates expected to

apply at the time when the temporary differences are likely to be reversed.

Deferred tax assets and liabilities are measured at the tax rates that are expected to

apply in the period in which the asset is realised or the liability is settled, based on tax

rates (and tax laws) that have been enacted or substantively enacted.

Deferred taxes relating to items recognised outside profit or loss are recognised outside

profit or loss. Deferred taxes are recognised in correlation to the underlying transaction

either in other comprehensive income or directly in equity.

The corporate income tax rate applicable to the parent company KELAG-Kärntner

Elektrizitäts-Aktiengesellschaft amounts to 25%.

The following income tax rates were used for the fully consolidated entities:

Income tax rates in % 2012 2011

Bosnia and Herzegovina 10 10

Bulgaria 10 10

Kosovo 10 10

Croatia 20 20

Macedonia 10 10

Austria 25 25

Romania 16 16

Serbia 10 10

Slovenia 18 20

Czech Republic 19 19

The financial instruments in the KELAG Group can be broken down into primary and

derivative financial instruments. In the case of KELAG, derivative financial instruments

constitute commodity forwards relating to energy (electricity and gas) as defined in

accordance with IAS 39. The derivative financial instruments are recognised at fair value.

The measurement basis in the field of electricity is provided by the market prices on the

EEX in the last active trading day for annual products in 2013 to 2015. For gas products,

fair value is measured in line with the procedure for electricity products, using the listings

of the corresponding virtual trading hubs. The following overview shows the derivative

financial instruments measured at fair value broken down according to their main

Derivative financial

instruments relating to

energy



30

measurement parameters. The resulting measurement levels are defined as follows in

accordance with IFRS 7:

Level 1: Quoted prices for similar instruments. This means that the measurement is

based on unadjusted prices of products traded on active markets.

Level 2: Inputs other than those included within level 1 that are directly observable. This

means that the measurement is based on models which in turn have observable

parameters (quotations) as inputs.

Level 3: Inputs that are not based on observable market data.

Derivative financial instruments resulting from the trade and sale of energy are measured

at fair value. Unrealised measurement gains and losses are generally recognised in the

income statement unless the prerequisites for hedge accounting pursuant to IAS 39 are

met. The KELAG Group currently does not use hedge accounting in the energy business.

The income and expenses from the measurement at fair values are netted for each

trading partner and reported in revenue and in the cost of materials in the income

statement.

Contracts entered into and for the purpose of the receipt or delivery of non-financial items

in accordance with the expected purchase, sale or usage requirements of the KELAG

Group are recognised not as derivative financial instruments but as pending transactions

(own use exemption). If such an agreement for own use is onerous as defined by IAS 37,

a provision for losses from pending transactions must be created. If the agreements

contain embedded derivatives, these and the host contracts are recognised separately

unless the economic characteristics and risks are closely linked to those of the host

contract. Reassessment only occurs if there is a change in the terms of the contract that

significantly modifies the cash flows that would otherwise be required.

All commercial transactions that optimise energy production constitute derivative financial

instruments as defined by IAS 39. They are reported in other assets if they have a

positive fair value and in other liabilities if they have a negative fair value.

The fair values of the derivatives used in the KELAG Group (forwards) can be measured

reliably as of each reporting date. The measurement of derivative financial instruments

relating to energy is based on market prices and a price forward curve derived from

market prices. As already mentioned, in the field of gas, listings for the corresponding

virtual trading hubs are used directly for measurement.

The results of fair value measurement are recorded in the corresponding income and

expense items concerning the energy industry. The resulting total comprehensive income

is part of the operating result.



31

The KELAG Group designates individual hedging instruments (derivatives) to hedge cash

flows (cash flow hedges).

The hedging relationship between the hedged item and the hedge instrument is

documented at the inception of hedge accounting, including the aims of risk management

and the entity‟s strategy on which the hedge relationship is based. Moreover, it is

regularly documented, both at the inception of the hedge and during its term, whether the

designated hedging instrument is highly effective at offsetting changes in cash flows

attributable to the hedged risk.

The effective part of the change in fair value of derivatives suitable as cash flow hedges

and designated as such is recorded in the hedging reserve under other comprehensive

income. The gain or loss allocable to the ineffective portion is immediately released to

profit or loss in the line items “Other income” or “Other expenses”.

Amounts that are recognised in other comprehensive income are reclassified to profit or

loss in the period in which the hedged item affects the profit or loss for the period. The

disclosure in the statement of comprehensive income and the income statement is made

in the same line items as are use for the hedged item. However, if a hedged forecast

transaction leads to the recognition of a non-financial asset or non-financial liability, the

gains and losses previously recognised in the other comprehensive income and

accumulated in equity are reclassified from equity and taken into account in the first-time

measurement of the cost of the asset or liability.

The hedge is derecognised when the Group dissolves the hedging relationship, the

hedging instrument matures, is sold, is cancelled or is exercised or is no longer suitable

for hedging purposes. The complete amount of the gains and losses recognised at that

point in time in other comprehensive income and accumulated in equity remains in equity

is not released to profit or loss until the forecast transaction is also recognised in the

income statement. If the forecast transaction is no longer expected to occur, the full

amount of gains recognised in equity is immediately released to the income statement.

Energy trading transactions that are settled physically and are allocable to the value-

added activities in the energy industry are presented on a gross basis, while pure trading

or speculative transactions (including, but not limited to price optimisation transactions)

which are settled net (such as an offsetting transaction) are presented on a net basis.

Contracts that satisfy the own use exemption in IAS 39 are always allocable to the value-

added activities in the energy industry.

Revenue is recognised when the goods are delivered to the customer or the service is

performed. The corresponding revenue is recognised when the significant risks and

rewards of ownership of the goods have passed to the buyer in accordance with the

contractual agreements, payment has been fixed contractually and it is probable that the

trade receivable will be fulfilled.

Cash flow hedges

Disclosure of energy

trading transactions

Revenue recognition



32

Most of the revenue is generated from the sale of electricity, gas and heat to industry

customers and consumers, energy supply companies and electricity exchanges as well

as network services.

For all financial instruments measured at amortised cost and interest bearing financial

assets classified as available for sale, interest income or cost is recorded using the

effective interest rate (EIR), which is the rate that exactly discounts the estimated future

cash payments or receipts through the expected life of the financial instrument or a

shorter period, where appropriate, to the net carrying amount of the financial asset or

liability. Interest income is included under finance income in profit or loss.

Dividends are recognised when the Group‟s right to receive the payment is established.

Preparation of the consolidated financial statements in accordance with IFRS requires

judgements in the application of accounting policies. In addition, assumptions must be

made by management about future developments that can materially affect the

recognition and value of assets and liabilities, the disclosure of other obligations as of the

reporting date and the presentation of income and expenses during the financial year.

All assumptions and estimates are based on circumstances and judgements prevailing on

the reporting date.

Qualifying assets are projects with a construction period of at least six months.

The recoverability of the carrying amounts of associates included at equity is assessed

on the basis of forecasts for future cash flows as well as using a discount rate adjusted to

the industry and the company risk.

The assessment of the existing social capital obligations are based on assumptions

concerning the discount rate, pensionable age, life expectancy and future salary and

wage increases.

In order to calculate any goodwill impairment, it is necessary to determine the value in

use of the cash-generating unit to which the goodwill is allocated. Calculation of the value

is use is based on estimates of future cash flows of the cash-generating unit as well as on

determining an appropriate discount rate. The discount rate is derived from the risk-free

interest rate plus a risk mark-up for borrowed capital (calculated based on current long-

term refinancing costs) and market risk, taking into account the beta factor. Valuation

appraisals and cost of capital assessments were referred to in determining the beta

factor, taking into account listed peer companies in the energy sector. A pre-tax WACC of

7.1% was determined for impairment testing of the domestic cash-generating units.

To cover country-specific risks, a corresponding mark-up for country risk was added to

WACC. This was derived applying a bond spread model.

Judgements and

forward-looking

statements



33

For the purpose of the impairment test, the goodwill resulting in the KELAG Group was

allocated to cash-generating units (CGUs) as follows:

Goodwill in EUR m 2012 2011

Total goodwill in the KELAG Group 3.9 4.5

International wind projects – Romania 0.0 1.1

International hydroelectric power projects – Bosnia 0.4 0.0

International hydroelectric power projects – Kosovo 0.2 0.2

National heat projects 3.3 3.2

The goodwill of the international hydroelectric projects in Bosnia is solely preliminary

goodwill due to purchase price allocations for the business combinations carried out in

the financial year 2012 that have not yet been completed. From a current perspective it

can be assumed that when the assets and liabilities assumed have been finally

determined and remeasured, goodwill will no longer have an effect due to the adjusted

first-time consolidation in the financial year 2013.

The impairment test of wind turbines in Romania led to impairment losses of around

EUR -1.7m due to changed market conditions on the Romanian energy sector. This

reduces the goodwill existing in the KELAG Group.

Goodwill of around EUR 0.2m resulted as part of the asset deal of the power plant in

Kosovo in the financial year 2009. The computational basis for impairment testing is the

2013 budget and the medium-term planning. A terminal value based on a normalised

financial year without growth reduction was applied at the end of plan periods. The

impairment test did not result in any need for impairment losses.

Uncertainties also exist with respect to the interpretation of complex tax regulations,

changes in tax laws, and the amount and timing of future taxable income. Given the wide

range of international business relationships and the long-term nature and complexity of

existing contractual agreements, differences arising between the actual results and the

assumptions made, or future changes to such assumptions, could necessitate future

adjustments to tax income and expense already recorded.

Deferred tax assets are recognised for all unused tax losses to the extent that it is

probable that taxable profit will be available against which the losses can be utilised.

Significant management judgment is required to determine the amount of deferred tax

assets that can be recognised, based upon the likely timing and the level of future taxable

profits together with future tax planning strategies.

The measurement of provisions for potential losses was based on assumptions and

estimates as of the reporting date.

The cost of defined benefit plans and the present value of the pension obligation are

determined using actuarial valuations. An actuarial valuation involves making various



34

assumptions that can differ from actual developments in the future. These include the

determination of the discount rate, future salary increases, mortality rates and future

pension increases. Due to the complexity of the valuation, the underlying assumptions

and its long-term nature, a defined benefit obligation is highly sensitive to changes in

these assumptions. All assumptions are reviewed at each reporting date.

Contingent liabilities amounting to EUR 31.0m not recorded in the consolidated statement

of financial position are regularly assessed in relation to their probability of occurrence. If

the probability of an outflow of resources embodying economic benefits is not high

enough to require the recognition of provisions and is not remote either, the relevant

obligations are to be disclosed as contingent liabilities. The estimates are made by the

experts responsible, taking market-related inputs into account (where possible).

In their separate financial statements, the entities measure non-monetary items

denominated in foreign currency on the reporting date at the rate prevailing when they

were first recorded. Monetary items are translated at the exchange rate as of the

reporting date. Any exchange rate gains generated and losses incurred as of the

reporting date from the measurement of monetary items in the statement of financial

position that are denominated in foreign currency are recognised through profit or loss in

other income and expenses respectively.

The Group‟s consolidated financial statements are presented in euros, which is also the

parent company‟s functional currency. Each entity in the Group determines its own

functional currency. Because the main foreign entities included in the consolidated

financial statements conduct their business independently in their local currency, the

items in the statement of financial position of all foreign entities are translated to the euro

at closing rates (mean rate) in the consolidated financial statements as of the reporting

date. Goodwill is translated at the closing rate as an asset of the economically

independent foreign entities. The exchange differences arising on the translation are

recognised in other comprehensive income. On disposal of a foreign operation, the

component of other comprehensive income relating to that particular foreign operation is

reclassified to the income statement.

The translation of the equity roll-forward of foreign companies accounted for at equity is

performed by analogy. Currency translation was based on the following exchange rates:

Currency translation



35

Exchange rates Average

Reporting

date

per EUR 2012 31/12/2012

Bulgarian leva (BGN) 1.9558 1.9558

Czech koruny (CZK) 25.1893 25.1510

Romanian lei (RON) 4.4471 4.4445

Croatian kuna (HRK) 7.5269 7.5575

Macedonian denari (MKD) 61.5214 61.5000

Serbian dinara (RSD) 112.8799 113.7183

Bosnian marks (BAM) 1.9558 1.9558

Exchange rates Average

Reporting

date

per EUR 2011 31/12/2011

Bulgarian leva (BGN) 1.9558 1.9558

Czech koruny (CZK) 24.6351 25.7870

Romanian lei (RON) 4.2416 4.3233

Croatian kuna (HRK) 7.4441 7.5370

Macedonian denari (MKD) 61.5317 61.5050

Serbian dinara (RSD) 102.3105 104.6409

Bosnian marks (BAM) 1.9558 1.9558



36

3. Notes on segment reporting

The segments and the information to be reported are based on the internal control and

reporting (management approach). The segments in the KELAG Group of

“Electricity/Gas”, “Heat” and “Investments/Misc.” correspond to the internal reporting

structure to the Board of Directors as the chief operating decision maker. The internal

performance of business segments is assessed primarily on the basis of operating

income; for the “Investments/Misc.” segment, the investment result is also relevant.

In segment reporting, the business activities of the KELAG Group are allocated to the

following segments:

Electricity/Gas

Heat

Investments/Misc.

The segments in these consolidated financial statements follow the management

approach concept set out in IFRS 8.5 and reflect the basis on which the management

and control of the company‟s economic situation is carried out by the Group‟s chief

operating decision makers. It is based on the internal reporting.

The “Electricity/Gas” segment contains the following (where applicable) for each product:

Production

Trading

Distribution

Network

Pursuant to Sec. 8 (3) ElWOG (Austrian Electricity Industry and Organisation Act),

electricity companies that provide at least two of the three functions of production,

transfer and distribution are required to provide separate statements of financial position

and income statements for production, transfer and distribution and to publish them in the

notes. This obligation to present the segments is already fulfilled in the separate financial

statements of KELAG and KNG-Kärnten Netz GmbH.

All activities in the field of utilising waste heat and bio-energy to supply heat on domestic

and foreign markets are allocated to the “Heat” segment.



37

The “Investments/Misc.” segment consists of

Management and control functions as well as activities in the field of domestic

investments

Financing function of KELAG Finanzierungsvermittlungs GmbH and

Activities in the telecommunications sector

The accounting policies applied to the segments subject to mandatory reporting are the

same as those described in the group accounting guidelines.

The chief decision maker monitors the investments in intangible assets and property,

plant and equipment and investments in equity investments for the purpose of monitoring

performance and allocating resources between the segments. This information is

disclosed to the users of financial statements in the segment reporting.

The internal performance of the business segments is assessed primarily on the basis of

operating income. This corresponds to the total operating income achieved by the entities

incorporated in the respective business segment under consideration of inter-segment

revenue and expenses.

Additions to intangible assets and property, plant and equipment and equity investments

(investments accounted for using the equity method and other investments) include

investments and increases through business combinations. These values also

correspond to the asset volume reported internally.

Geographical information on the revenue generated with external customers and on non-

current assets was not provided, as the information required is not available and the

costs for gathering such information would be disproportionate.



38

Segment reporting 2012**

Electricity/

Gas* Heat*

Investments/

Misc. Eliminations

Total

Group

EUR m

External revenue (including net income

from energy trading activities) 843.9 158.0 2.7 0.0 1,004.6

Intercompany revenue 10.8 1.4 0.0 -12.3 0.0

Total revenue 854.7 159.5 2.7 -12.3 1,004.6

Operating result 105.4 24.4 -31.9 0.0 97.8

Amortisation, depreciation and

impairment -70.9 -19.3 -6.8 0.0 -97.0

thereof impairments -25.8 0.0 0.0 0.0 -25.8

Investment result 0.0 0.0 29.3 0.0 29.3

Profit/loss from investments accounted

for using the equity method 0.0 0.0 3.1 0.0 3.1

Carrying amount of investments

accounted for using the equity method 0.0 0.0 6.9 0.0 6.9

Investments in intangible assets and

property, plant and equipment 128.7 13.9 6.0 0.0 148.6

Investments in other interests in other

entities 6.0 2.4 0.0 0.0 8.4

Segment reporting 2011**

Electricity/

Gas* Heat*

Investments/

Misc. Eliminations

Total

Group

EUR m

External revenue (including net income

from energy trading activities) 815.7 136.0 2.9 0.0 954.6

Intercompany revenue 12.3 0.3 0.0 -12.5 0.0

Total revenue 828.0 136.2 2.9 -12.5 954.6

Operating result 94.4 17.0 -13.5 0.0 97.8

Amortisation, depreciation and

impairment -42.0 -14.1 -6.5 0.0 -62.6

thereof impairments 0.0 -1.5 0.0 0.0 -1.5

Investment result 0.0 0.0 31.9 0.0 31.9

Profit/loss from investments accounted

for using the equity method 0.0 0.0 -0.2 0.0 -0.2

Carrying amount of investments

accounted for using the equity method 0.0 0.0 12.1 0.0 12.1

Investments in intangible assets and

property, plant and equipment 140.0 24.9 8.2 0.0 173.1

Investments in other interests in other

entities 4.8 9.2 0.0 0.0 14.0

* Earnings are calculated from the proceeds from secondary business (LWL mediation) after deduction of overheads for the central division.

** The revenue reported in the income statement from Electricity/Gas, Heat and Investments/Misc. are not comparable with the segment reporting, as

the segments record revenue in all of the aforementioned areas.



39

4. Notes to the income statement

The breakdown of revenue proceeds by area of activity presents the following picture for

the year 2012:

Revenue

EUR m 2012 2011

Revenue (including gross income from energy trading activities) 2,007.0 1,660.3

thereof electricity/gas 1,847.7 1,522.4

thereof heat 146.4 134.0

thereof miscellaneous 13.0 3.8

Cost of purchased energy from energy trading activities -1,002.4 -705.7

Revenue (including net income from energy trading activities) 1,004.6 954.6

Of the electricity revenues including gross income from energy trading activities,

electricity trading accounted for about EUR 1,157.8m (prior year: approximately

EUR 897.0m). The total increase of EUR 260.8m is due to the economic growth and to

making use of the market volatility in electricity trading. The revenue including gross

income from energy trading activities also comprises around EUR 163.2m (prior year:

roughly EUR 94.2m) of income from natural gas trading.

Other income

EUR m 2012 2011

Changes in inventories of finished goods and work in process 1.7 -1.9

Own work capitalised 26.7 25.0

Income from the reversal of provisions 17.2 5.0

Sundry 25.5 16.7

Total other income 71.2 44.8

The largest items included in sundry other income are income from rentals and leases of

approximately EUR 2.2m (prior year: approximately EUR 2.4m) and various offsetting

transactions of approximately EUR 19.2m (prior year: approximately EUR 11.5m).

Cost of materials and supplies, and of other purchased services

EUR m 2012 2011

Cost of materials -86.9 -75.7

Cost of purchased services

Electricity -467.5 -484.4

Natural gas -74.1 -74.1

Third-party services -30.6 -14.1

Total cost of purchased services -572.3 -572.7

Total cost of materials and supplies, and of other purchased services -659.1 -648.4

(1)

Revenue

(2)

Other income

(3)

Cost of materials and

supplies, and of other

purchased services



40

Personnel expenses

EUR m 2012 2011

Wages and salaries -113.4 -92.6

Expenses for statutory social insurance contributions, payroll-related

taxes and mandatory contributions -24.4 -23.2

Expenses for trainees‟ wages -1.3 -1.2

Other expenses relating to social security -1.2 -1.2

Subtotal -140.3 -118.2

Expenses for severance payments -1.6 -1.3

Expenses for old-age pensions -5.7 -4.8

Total personnel expenses -147.6 -124.3

The increase in personnel expenses of around EUR 23.3m is largely due to the decision

to extend the phased retirement model and the recognition of personnel expenses as part

of full consolidation of Kärntner Restmüllverwertungs GmbH.

The number of employees, measured as an annual average of full-time equivalents (part-

time jobs taken into account pro rata, including dormant employment contracts), was as

follows in the KELAG Group

Headcount 2012 2011 Change

Salaried employees 1,406 1,357 49

Trainees 116 114 2

Total employees 1,522 1,471 51

The increase is mostly attributable to the expansion of the investment in Kärntner

Restmüllverwertungs GmbH in 2012 and the associated first-time inclusion of its

employees in the group headcount as well as the implementation of the growth strategy

abroad.

About EUR 0.3m was paid in the form of contributions to employee pension funds during

the financial year 2012 (prior year: about EUR 0.3m).

Depreciation of property, plant and equipment amounted to EUR 53.5m (prior year:

EUR 49.0m), while amortisation of intangible assets amounted to EUR 41.8m (prior year:

EUR 13.6m). In addition, an impairment loss of around EUR 1.7m was charged on

goodwill within this item (prior year: EUR 0.0m). This includes an impairment loss of

around EUR 24.1m for a pumped storage power station. The impairment loss was due to

changed market conditions.

(4)

Personnel expenses

(5)

Amortisation,

depreciation and

impairment



41

Other expenses

EUR m 2012 2011

Taxes (excluding taxes on income) -1.9 -2.4

Office and factory buildings -2.9 -2.7

Motor vehicle costs -2.4 -2.1

Travel expenses -3.9 -3.8

Communication expenses -2.1 -2.0

Rental and lease expenses -6.6 -5.8

Personnel leasing -7.6 -7.5

Operating costs -0.7 -0.9

Advertising and promotion expenses -5.3 -5.3

Insurance -2.9 -2.8

Sundry expenses -38.0 -30.9

Total other expenses -74.3 -66.2

With regard to other expenses, reference is made to Note 23 “Non-current provisions”

and Note 27 “Current provisions”.

Interest result

EUR m 2012 2011

Interest income 2.4 2.3

Interest expenses -21.3 -18.3

Total interest result -18.9 -16.1

Interest income mainly includes interest income from bank balances.

Interest expenses are mainly composed of interest payments and deferred interest for the

bonds and interest components of additions to provisions, which contain the annual

accrued interest amounts in connection with rolling forward the present value of the non-

current provisions. Of the borrowing costs, around EUR 4.6m (previous year: around

EUR 4.2m) had to be capitalised in the reporting year in accordance with IAS 23.

The investment result included all income and expenses recorded in connection with the

operating investments. Income from investments amounting to approximately EUR 28.3m

(prior year: around EUR 31.8m) was recognised as the main item in the other investment

result.

(6)

Other expenses

(7)

Interest result

(8)

Other investment result



42

Income taxes

EUR m 2012 2011

Current income taxes / tax allocation -24.7 -17.4

Deferred income taxes 9.7 -4.3

Total income taxes -15.1 -21.7

The tax expense in the 2012 reporting period of approximately EUR -15.1m is around

EUR 12.8m lower than the imputed tax expense of approximately EUR -27.8m, which

would result from applying a tax rate from 25% to earnings before income taxes (around

EUR 111.3m). The reasons for the difference between the imputed and reported tax

expense in the Group are as follows:

Tax reconciliation

EUR m 2012 2011

Earnings before income taxes 111.3 113.6

Imputed income tax expense -27.8 -28.4

Differences due to different tax rates 0.1 0.1

Tax-free income 7.2 9.5

Non-deductible expenses 4.0 -0.8

Income tax expense for the period -16.6 -19.6

Income tax income/expense relating to other periods 1.5 -2.2

Reported income tax expense -15.1 -21.8

(9)

Income taxes



43

5. Notes to the statement of financial position

Effective as of 27 October 2011, all of the shares in IEP energija d.o.o. were acquired at a

cost of EUR 4.0m. The entity‟s hydroelectric power stations at Duboki potok and Sastavci

in the Federation of Bosnia and Herzegovina have 1.9 MW of installed capacity. The final

purchase price allocation is as follows:

Cost of IEP energija d.o.o.

EUR k

Purchase price paid in cash (including cash equivalents acquired) 3,989

Contingent purchase price adjustments 0

Cost of acquisition 3,989

IEP energija d.o.o.

EUR k

Acquisition date 27/10/2011

Acquired share (direct) 100%

Non-current assets 3,990

Current assets 1

Remeasured assets 3,991

Equity 3,991

Non-current liabilities 0

Current liabilities 0

Remeasured liabilities 0

Net assets 3,991

Cost 3,989

Residual goodwill as of the acquisition date -1

Net outflow of cash from the acquisition

Purchase price paid in cash 3,989

less cash acquired 0

Net outflow from the acquisition 3,989

Included in the consolidated net profit 27/10 – 31/12/2011

Revenue 2011 0

Net profit or loss 2011 -2

Revenue and net profit or loss 1/1 – 31/12/2011

Revenue 2011 0


Purchase price

allocation for business

acquisitions and

business start-ups



44

The purchase transaction relating to 99.99% of the shares in KelaVENT Charlie SRL was

closed on 22 December 2011. Upon completion, the wind farm will have an installed

capacity of 8 MW. The final amounts from purchase accounting are as follows based on

the purchase price adjustment of EUR 0.3m:

KelaVENT Charlie SRL

EUR k


Acquired share (direct) 99.99%


Current assets 420


Equity 343

Non-current liabilities 2,456


Remeasured liabilities 2,657

Net assets 343

Cost 1,191

Residual goodwill as of the acquisition date 848


Purchase price paid in cash 920

less cash acquired -387

Net outflow from the acquisition 533


Revenue 2011 0

Net profit or loss 2011 0


Revenue 2011 0




45

Effective 30 September 2011 and 11 August 2011 100% of the shares in the entities

Alternative Energie Salzburg GmbH and Biowärme Friesach GmbH were acquired at a

cost of EUR 7.5m and EUR 2.3m respectively. Provisional amounts were consolidated for

both entities in the 2011 reporting period. The final purchase price allocation is as follows:

Alternative Energie Salzburg GmbH

EUR k




Current assets 855


Equity 5,011




Net assets 5,011

Cost 7,500

Residual goodwill as of the acquisition date 2,489






Revenue 2011 1,646



Revenue 2011 1,646




46

Biowärme Friesach GmbH

EUR k




Current assets 402


Equity 1,602




Net assets 1,602

Cost 2,300







Revenue 2011 463



Revenue 2011 463


Effective 10 May 2012, the previously held interests in Kärntner Restmüllverwertungs

GmbH (KRV) were increased from 42.87% to 85.74%. KRV, which was incorporated in

1997, operates a thermal waste treatment facility at Industriepark Arnoldstein/Carinthia

with the objective of disposing of the annual volume of household waste in Carinthia.

Thermal waste treatment is not part of the KELAG Group‟s core competence. Taking into

account the generation of green electricity and district heating extraction based on

biogenic waste, the increase in the shareholding in KRV will, however, contribute to the

implementation of the growth strategy adopted by KELAG on the basis of renewable

energies.



47

The overall assets and liabilities of KRV are as follows as of the acquisition date:

Kärntner Restmüllverwertungs GmbH

EUR k




Current assets 13,955


Equity 20,123


Current liabilities 11,117


Net assets 20,123

Consideration paid 17,259

Non-controlling interests recognised as of the acquisition date 2,869




less cash acquired -7,173


Disclosures relating to the

business combination achieved in stages

Carrying amount of the previously held investment accounted for using the equity

method 4,246

Gain on remeasurement of previously held equity interests* 3,563

Acquisition-date fair value of previously held equity interests 7,809


Revenue 2012 9,561

Net profit or loss 2012 -1,903


Revenue 2012 16,909


* Recognised in the profit/loss from investments accounted for using the equity method



48

The purchase transaction relating to 99.99% of the shares in KelaVENT Echo SRL was

closed by KI-KELAG International GmbH on 28 September 2012. KelaVENT Echo SRL is

constructing a wind farm in Pogoanele, Romania. The four turbines have a total output of

8 MW.

KelaVENT Echo SRL

EUR k



Non-current assets 796

Current assets 419


Equity 448




Net assets 448

Cost 1,292







Revenue 2012 0



Revenue 2012 0




49

The entity Interhem d.o.o. Banja Luka was consolidated for the first time by Interenergo

d.o.o. as of 11 July 2012. It has a concession to construct and operate Kobiljska Rijeka

hydroelectric power station in the Bosnian region of Republika Srpska.

Interhem d.o.o. Banja Luka

EUR k




Current assets 9

Remeasured assets 62

Equity 49




Net assets 50

Cost 100







Revenue 2012 0



Revenue 2012 0




50

Effective 22 March 2012, the entity LSB Elektrarne d.o.o. Banja Luka was included in

KELAG‟s scope of consolidation for the first time. This entity holds the concession for

Medna hydroelectric power station with a planned installed capacity of 4.9 MW. The

purchase price for the project company domiciled in the Bosnian region of Republika

Srpska came to EUR 0.4m.

LSB Elektrane d.o.o. Banja Luka

EUR k




Current assets 7

Remeasured assets 296

Equity 1




Net assets 1

Cost 400







Revenue 2012 0



Revenue 2012 0




51

In addition, Interenergo d.o.o. purchased 100% of the shares in Inter-Energo d.o.o. Gornji

Vakuf – Uskoplje on 31 December 2012.

The purchase price allocation was as follows:

Inter-Energo d.o.o. Gornji Vakuf

EUR k




Current assets 54


Equity 24


Current liabilities 4,831


Net assets 24

Cost 1

Residual goodwill as of the acquisition date -23





Included in the consolidated net profit 31/12/2011

Revenue 2012 0



Revenue 2012 0


The net assets reported in the consolidated financial statements as of 31 December 2012

from all business combinations in the financial year 2012 are based solely on a

preliminary assessment of fair value. The final accounting for the business combinations

takes place within the twelve-month period defined in IFRS 3.45, since the fair values of

identifiable assets, liabilities and contingent liabilities of the acquirees could not be

reliably determined at the time of preparing the financial statements.



52

5.1. Non-current assets

Electricity purchase rights, natural gas purchase rights and other rights – including

software and memo items for concessions and goodwill – were reported as intangible

assets.

Goodwill – development of carrying amounts*

EUR k 2012 2011

Opening balance 4,309 0

Additional amounts recognised from business combinations in the

financial year 1,411 4,309

Adjustment due to final purchase price allocation -253 0

Impairment losses -1,697 0

Total carrying amount of goodwill 3,769 4,309

* From consolidation procedures

Accumulated impairment losses as of the beginning of the financial year 2012 totalled

some EUR 20.1m.

The development of the other intangible assets and of property, plant and equipment is

shown in the statement of changes in non-current assets at the end of the notes.

Investments accounted for using the equity method

EUR m 2012 2011

Share in assets and liabilities of the investments accounted for

using the equity method

Current assets 3.8 6.5

Non-current assets 23.6 38.5

Liabilities 21.5 32.9

Equity 5.8 12.1

Share in revenue and profit/loss from investments accounted for

using the equity method

Revenue 12.7 19.3

Profit/loss 0.6 1.7

Carrying amount of the investment 6.9 12.1

The profit/loss from investments accounted for using the equity method reported in the

income statement included around EUR 3.6m from the remeasurement of the equity

interests held in Kärntner Restmüllverwertungs GmbH before the change in consolidation

methods.

In addition to affiliates that are not fully consolidated on grounds of immateriality, interests

in other entities reported in the statement of financial position also include immaterial

investments in associates that are not accounted for using the equity method. Other

(10)

Intangible assets

Goodwill

(11)

Property, plant and

equipment

(12)

Investments accounted

for using the equity

method

(13)

Other interests in other

entities



53

interests in other entities with a shareholding of less than 20.0% are also reported in this

item.

As these equity instruments are not listed and their fair values cannot be reliably

determined, they are recognised at cost less any impairment.

The main investment is the 10% investment in VERBUND Hydro Power AG of around

EUR 123.3m.

Long-term securities (mainly government bonds) serve to cover the pension and

severance provisions.

Other securities and book-entry securities

EUR m 2012 2011

Securities 29.6 27.9

Book-entry securities 0.1 0.1

Total other securities and book-entry securities 29.7 28.1

Other non-current receivables and assets

EUR m 2012 2011

Loans 4.1 4.9

Receivables from offsetting of loans 0.7 0.8

Payments on account 0.0 0.3

Sundry 1.4 0.9

Total other non-current receivables and assets 6.2 6.8

The differences between the tax bases and the IFRS carrying amounts as well as the

existing unused tax losses as of the reporting date result in the following deferred taxes:

(14)

Other securities and

book-entry securities

(15)

Other non-current

receivables and assets

(16)

Deferred tax assets and

liabilities



54

Deferred tax assets and liabilities 31/12/2012 31/12/2011

EUR m

Deferred

tax assets

Deferred tax

liabilities

Deferred tax

assets

Deferred tax

liabilities

Non-current assets 9.1 35.8 7.3 31.9

Current assets 0.0 7.0 0.0 0.6

Special tax-allowed items 8.9 13.8 9.8 14.1

Pension provisions 11.3 0.0 9.6 0.0

Other non-current provisions 25.0 0.0 15.3 0.1

Other non-current liabilities 1.3 0.0 0.1 0.5

Current liabilities 6.6 0.0 0.1 0.0

Subtotal 62.3 56.7 42.1 47.2

Unused tax losses 0.2 0.0 0.1 0.0

Total before netting* 62.5 56.7 42.2 47.2

Netting* -56.7 -56.7 -41.2 -41.2

Recognised in the statement of financial

position 5.8 0.0 0.9 6.0

* The adjustment item for netting relates to the netting of deferred taxes at group entity level.

In the 2012 reporting period, the net item for deferred tax assets and liabilities changed

as follows:

Deferred tax assets and liabilities

EUR m 2012 2011

Opening balance as of 1 January -5.1 -0.2

Change not recognised in profit or loss 1.2 -0.6

Change recognised in profit or loss 9.7 -4.3

Closing balance as of 31 December 5.8 -5.1

The change not recognised in profit or loss essentially refers to gains and losses

recognised directly in other comprehensive income from available-for-sale financial

instruments, actuarial gains and losses arising from use of the projected unit credit

method in accordance with IAS 19 for pension obligations and statutory severance

payments and the initial recognition as a result of changes in the scope of consolidation.

Tax effects on other comprehensive income

EUR m 2012 2011

Actuarial gains and losses 4.2 0.1

Gains or losses from exchange differences 0.0 0.1

Unrealised gains/losses from the disposal of available-for-sale financial

instruments -0.1 0.0

Hedges 0.1 0.0

Total income taxes 4.2 0.2



55

5.2. Current assets

The current assets item includes all assets that are expected to be recovered or settled

within the course of ordinary operations.

Inventories

EUR m 2012 2011

Materials and supplies 10.6 11.7

Work in process 0.0 0.1

Finished goods and merchandise 4.8 6.2

Services not yet invoiced 1.9 0.2

Total inventories 17.3 18.2

The value of the natural gas inventory on the reporting date amounted to approximately

EUR 3.9m (prior year: roughly EUR 5.8m). Write-downs of approximately EUR 0.3m were

recognised in inventories in the financial year 2012 (prior year: around EUR 1.2m).

Trade receivables and other receivables and assets

EUR m 2012 2011

Trade receivables from third parties 53.6 40.3

Receivables from associates 0.7 2.8

Other receivables and assets 59.2 35.9

Total trade receivables and other receivables and assets 113.5 79.1

Trade receivables from third parties related chiefly to electricity, heat and natural gas

receivables already billed.

See Note 6.3 “Credit risk” on the credit risk of trade receivables to understand how the

Group manages and measures credit quality of trade receivables that are neither past

due nor impaired.

Receivables from associates all involved trade receivables.

(17)

Inventories

(18)

Trade receivables and

other receivables and

assets



56

Impairment losses

EUR m

Carrying

amount

Impairment

loss Gross

2011

Trade receivables from third parties 40.3 3.6 43.9

Receivables from associates 2.8 0.0 2.8

Other receivables and assets 35.9 0.0 35.9

Total trade receivables and other receivables and

assets 79.1 3.6 82.7

2012

Trade receivables from third parties 53.6 4.0 57.6

Receivables from associates 0.7 0.0 0.7

Other receivables and assets 59.2 0.1 59.2

Total trade receivables and other receivables and

assets 113.5 4.0 117.5

Other receivables and assets

EUR m 2012 2011

Receivables from offsetting of taxes 11.2 9.6

Prepayments made 1.1 3.0

Market value of derivatives 27.7 17.7

Sundry 19.2 5.6

Total other receivables and assets 59.2 35.9

Other receivables and assets on the reporting date included receivables from claims,

accrued interest, receivables from the tax office, market value of derivatives, etc. With the

exception of the derivatives, other receivables and assets have been accounted for at

amortised cost, which essentially corresponded to their fair values. The derivatives were

recognised at fair value.

Age structure of the trade receivables

EUR m Total

Neither past

due nor

impaired < 30 days

31 – 120

days

121 – 360

days > 360 days

2012 53.6 42.3 6.0 0.6 1.0 3.7

2011 40.3 29.7 8.6 2.0 0.0 0.0

As of the reporting date on 31 December 2012, bank balances and cash in hand

amounting to about EUR 250.8m (prior year: approximately EUR 87.6m) were

recognised.

(19)

Cash and cash

equivalents



57

Cash and cash equivalents

EUR m 2012 2011

Cash in hand 0.1 0.5

Bank balances 250.7 87.1

Total cash and cash equivalents 250.8 87.6

For an explanation of the increase, reference is made to the statement of cash flows (see

5. Statement of cash flows of the KELAG Group).

5.3. Equity

Issued capital was unchanged at EUR 58.2m and is divided into 8,000,000 registered no-

par value shares. There were no options to issue new shares.

The capital reserves amounting to about EUR 263k reported in the statement of changes

in equity are appropriated capital reserves.

The accumulated profit or loss reported in the statement of changes in equity included the

statutory reserve, which was unchanged on the prior year at around EUR 5.8m and, with

10% of the issued capital, was fully endowed in accordance with stock corporation law.

The item also comprises untaxed reserves of around EUR 54.4m (prior year:

approximately EUR 56.4m).

The accumulated profit or loss included the Group‟s retained earnings.

The dividend is determined on the basis of the net profit for the year shown in the

separate financial statements of KELAG-Kärntner Elektrizitäts-Aktiengesellschaft as

parent company, which are prepared in accordance with company law. Accordingly, it will

be proposed to the Annual General Meeting to distribute approximately EUR 40.0m to the

shareholders. This is equivalent to a proposed dividend per share of EUR 5.0.

Equity attributable to non-controlling interests shows the shareholdings of third parties in

group entities. These stemmed from the consolidation of Lumbardhi/Kosovo

Beteiligungsgesellschaft mbH, KelKos Energy Sh.p.k, Windfarm Balchik 1 OOD,

Windfarm Balchik 2 OOD and Windfarm Balchik 4 OOD. Third-party ownerships interests

from the consolidation of Interenergo-Gesellschaft Hidrowatt d.o.o. Beograd, Kärntner

Restmüllverwertungs GmbH, Kraftwerk Waben GmbH as well as Wärmeversorgung

Arnoldstein Errichtungs- und Betriebsgesellschaft mbH, Kraftwerksgesellschaft Tröpolach

GmbH and BES-BioEnergie für Spittal GmbH are also reported in this item.

(20)

Equity attributable to the

equity holders of the

parent company

Capital reserves

Accumulated profit or

loss and dividend

(21)

Equity attributable to

non-controlling interests



58

5.4. Non-current liabilities

Non-current financial liabilities rose on the prior-year level from around EUR 264.1m to

around EUR 454.2m. This item of the statement of financial position includes the

EUR 250m bond issued in 2009 at an issue price of 99.383% and interest of 4.5% for the

five-year term, the EUR 150m bond issued in the financial year 2012 at an interest rate of

3.25% for a ten-year term. The issue price was at 99.916%.

In addition to provisions for severance payments and pensions, other non-current

provisions were recognised in the item for non-current provisions.

List of non-current provisions

EUR m 2012 2011

Pension provisions 96.5 91.2

Provision for severance payments 69.5 62.3

Provisions for phased retirement 36.7 21.5

Provision for long-service awards 13.0 12.0

Other 84.5 86.3

Total non-current provisions 300.2 273.5

(22)

Non-current financial

liabilities

(23)

Non-current provisions



59

Development of pension provisions

EUR m 2012 2011

Reconciliation of the provision reported in the statement of financial

position

Present value (DBO) of the obligations covered by the plan assets 147.6 136.5

Fair value of plan assets -51.0 -45.3

Provision recognised as of 31 December 96.5 91.2

The expense for pension provisions breaks down as follows:

Service cost 0.9 0.9

Interest cost 5.6 5.8

Expected return on investment -1.8 -1.9

Pension cost recognised in the income statement 4.7 4.7

Development of the pension provision

Provision recognised as of 1 January 91.2 91.7

Net expense recognised in profit or loss 4.7 4.7

Change in the fully recognised actuarial gains/losses in the period 10.5 1.4

Pension/bonus payments -9.8 -10.1

Plan payments 3.4 3.3

Contributions to plan assets -3.6 0.0

Net transfer contributions 0.2 0.1


Development of actuarial gains/losses (accumulated)

Accumulated actuarial gain (+)/loss (-) as of 1 January -265 -25.1

Actuarial gain (+)/loss (-) -14.1 0.9

Investment gains (+)/losses (-) for the year 3.6 -2.3

Accumulated actuarial gain (+)/loss (-) * -37.0 -26.5

Development of the present value of the obligation (DBO)

Present value (DBO) as of 1 January 136.5 140.7

Service cost (entitlements acquired) 0.9 0.9


Pension payments -9.8 -10.1

Transfer amount due to additions 0.2 0.1

Actuarial gains/losses 14.1 -0.9

Actual DBO as of 31 December 147.6 136.5

Development of the plan assets

Plan assets at fair value as of 1 January 45.3 49.0

Contributions to plan assets 3.6 0.0

Plan payments -3.4 -3.3

Expected return on plan assets 1.8 1.9

Actuarial gains (+)/losses (-) 3.6 -2.3

Plan assets at fair value as of 31 December 51.0 45.3

* Reported in other comprehensive income

Pension provisions



60

Plan assets

in % 2012 2011

Bonds – euros 25.76 46.20

Bonds – Euro High Yield 11.61 0.00

Bonds – Euro Emerging Markets 0.00 2.61

Corporate bonds – euros 17.70 21.86

Shares – euros 12.64 4.40

Shares – non-euros 12.72 9.70

Shares – Emerging Markets 6.79 0.40

Real estate 3.24 9.82

Alternative investment instruments 3.39 5.01

Cash 6.15 0.00

Total 100.00 100.00

Experience adjustments on actuarial gains and losses

EUR m 2012 2011 2010 2009

Expected present value (DBO) at the end of the period 112.1 137.1 125.9 113.7

-

Present value (DBO) at the end of the period according to

the measurement parameters of the beginning of the

period -124.8 -136.5 -126.4 -117.8

+/- Transfer amount due to additions/exits 0.0 0.1 0.2 0.2

+ Expected pension payments 8.6 10.3 10.2 10.1

- Current pension payments -6.3 -10.1 -10.5 -10.4

= Experience adjustments on actuarial gains and losses -10.4 0.9 -0.6 -4.2



61

Development of the provision for severance payments

EUR m 2012 2011

Provision recognised in the statement of financial position

Present value (DBO) of the obligation 69.5 62.3


The expense for provisions for severance payments breaks down as

follows:

Service cost 1.2 1.0


Severance expenses recognised in the income statement 3.8 3.6

Development of the provision

Provision recognised as of 1 January 62.3 61.3

Net expense recognised in profit or loss 3.8 3.6

Change in the fully recognised actuarial gains/losses in the period 6.2 -0.7

Severance payments -2.8 -1.9


Development of actuarial gains/losses (accumulated)

Accumulated actuarial gain (+)/loss (-) as of 1 January -8.8 -9.5

Actuarial gain (+)/loss (-) -6.2 0.7

Accumulated actuarial gain (+)/loss (-) -15.0 -8.8

Experience adjustments on actuarial gains and losses

EUR m 2012 2011 2010 2009

Expected present value (DBO) at the end of the period 62.9 62.5 57.5 51.9

- Present value (DBO) at the end of the period according to the

measurement parameters of the beginning of the period -64.0 -62.3 -56.5 -52.9

+ Expected total payments 3.3 2.4 3.5 3.2

- Actual total payments -2.8 -1.9 -3.9 -3.7

= Experience adjustments on actuarial gains and losses -0.7 0.7 0.7 -1.6

Other non-current provisions contain provisions for potential losses from onerous

agreements. Other material items relate to measures necessary due to official regulations

for existing power plants as well as provisions in connection with pending and anticipated

litigation. Non-current provisions are discounted at 3.5% (prior year: 3.5%).

The development of other non-current provisions for the financial year 2012 is as follows:

Provisions for

severance payments

Other non-current

provisions



62

Provisions for

EUR m

German phased

retirement

(“Altersteilzeit”)

Long-

service

awards Other

Carrying amount as of 1 January 2011 21.3 11.1 70.7

Additions 0.0 1.4 14.6

Unwinding of the discount 0.9 0.5 0.4

Utilisation 0.0 0.9 1.1

Reversal 0.6 0.0 2.1

Other income and expenses recognised in equity 0.0 0.0 -0.5

Reclassification 0.0 0.0 4.3

Carrying amount as of 31 December 2011 /

1 January 2012 21.6 12.0 86.3

Additions 14.2 1.1 8.6

Unwinding of the discount 0.9 1.0 0.4


Reversal 0.0 0.0 10.5

Other income and expenses recognised in equity 0.0 0.0 -0.5

Reclassification 0.0 0.0 0.4

Carrying amount as of 31 December 2012 36.7 13.0 84.5

For more details on other provisions, reference is made to Note 27 – Current provisions.

In the electricity sector, around EUR 39.7m (prior year: around EUR 37.2m) related to

construction cost subsidies for grids and around EUR 47.5m (prior year: around

EUR 49.5m) for connection costs. From 2007, the construction cost subsidies are

amortised at a rate of 5% and offset against revenue in accordance with Sec. 3 (6) SNT-

VO (system user charges ordinance) 2006.

Non-current other liabilities of EUR 3.8m (prior year: EUR 3.8m) related to liabilities to

affiliates, while EUR 60.5m (prior year: EUR 57.5m) concerned sundry other liabilities.

5.5. Current liabilities

Current financial liabilities accounted for around EUR 3.7m in the reporting period (prior

year: around EUR 13.4m). The reduction can mainly be explained by the repayment of

current liabilities to banks and other loan providers.

The development of current provisions in the KELAG Group is as follows:

(24)

Construction cost

subsidies

(25)

Non-current other

liabilities

(26)

Current financial

liabilities

(27)

Current provisions



63

EUR m

Current

taxes Other Total

Carrying amount as of 1 January 2011 0.2 58.8 59.0

Additions 0.1 15.2 15.3



Reclassification 0.0 -4.3 -4.3

Other income and expenses recognised in equity and

changes in the scope of consolidation 0.0 0.0 0.0

Carrying amount as of 31 December 2011/

1 January 2012 0.1 41.1 41.1

Additions 0.0 22.9 22.9



Reclassification 0.0 -0.4 -0.4

Other income and expenses recognised in equity and

changes in the scope of consolidation 0.0 0.4 0.4

Carrying amount as of 31 December 2012 0.1 43.7 43.8

Non-current and current other provisions

EUR m 2012 2011

Easements, transfer fees and similar obligations 31.8 18.9

Potential losses and rate risks relating to electricity 50.1 48.8

Potential losses from long-term natural gas agreements 16.7 8.5

Measures due to requirements made by authorities relating to power

stations 7.9 7.5

Other 21.7 43.7

Total non-current and current other provisions 128.3 127.5

Trade payables and other liabilities totalled EUR 219.2m (prior year: EUR 165.6m), which

constitutes a rise of roughly EUR 53.6m on the prior-year level.

Trade payables and other liabilities

EUR m 2012 2011

Trade payables to third parties 50.7 43.0

Liabilities to affiliates 47.5 28.7

Liabilities to associates 3.0 8.8

Other liabilities 118.1 85.2

Total trade payables and other liabilities 219.2 165.6

Maturities of trade payables

EUR m Total On demand

less than 3

months 3 to 12 months 1 to 5 years

2012 50.8 46.1 4.0 0.5 0.1

(28)

Trade payables and

other liabilities



64

Other liabilities

EUR m 2012 2011

Tax liabilities 34.9 17.6

Social security liabilities 2.3 2.2

Liabilities from advance payments received 1.9 1.1

Market value of derivatives 26.5 12.6

Sundry 52.5 51.6

Total other liabilities 118.1 85.2

For the measurement of derivatives, please refer to accounting policies in Section 2.3.

6. Other notes

6.1. Financial instruments and risk management

With the exception of derivative financial instruments related to trading activities and one

interest hedging instrument, the KELAG Group holds only non-derivative financial

instruments, which on the assets side include mainly cash, securities, trade receivables,

bank balances and other receivables, and on the liabilities side bank loans, bonds, trade

payables and other liabilities. The fair values result from market prices or are determined

using generally accepted measurement methods.

The fair value of the bonds issued by KELAG amounted to EUR 416.0m (prior year:

EUR 259.9m) as of the reporting date and was determined based on observable market

prices (Level 1). For the other financial instruments under IFRS 7, we refer to Note 18

“Trade receivables and other receivables and assets”, Note 19 “Cash and cash

equivalents”, and Note 28 “Trade payables and other liabilities”. The carrying amount

recognised in the statement of financial position for the items mentioned corresponds to

the market value as of the reporting date.

Non-current and current financial

liabilities 2012

Principal

repayments Interest payments

EUR m

Carrying

amounts 2013

2014-

2017

from

2018 2013

2014-

2017

from

2018

1. Bonds 400.0 0.0 250.0 150.0 16.1 30.8 24.4

2. Liabilities to banks 46.0 7.4 17.6 20.9 0.5 6.1 3.2

3. Liabilities to others 12.0 0.1 5.3 6.6 0.0 0.0 1.0

Total financial liabilities 457.9 7.5 272.9 177.5 16.6 36.9 28.6

Reporting on

financial instruments



65

Non-current and current financial

liabilities 2011

Principal

repayments Interest payments

EUR m

Carrying

amounts 2012

2013-

2016

from

2017 2012

2013-

2016

from

2017

1. Bonds 248.7 0.0 250.0 0.0 11.3 23.8 0.0

2. Liabilities to banks 21.4 15.6 3.4 2.4 0.4 0.6 0.1

3. Liabilities to others 7.4 0.1 6.1 1.3 0.3 0.6 0.1

Total financial liabilities 277.5 15.7 259.5 3.7 12.0 25.1 0.3

There were no delayed payments or payment defaults and contract breaches relating to

loan liabilities during the financial year.

Fair value hierarchy in the measurement of the derivative financial instruments

2012

EUR m Level 1 Level 2 Level 3 Total

Market value of derivatives (assets) 0.0 27.7 0.0 27.7

Market value of derivatives (liabilities) 0.0 26.5 0.0 26.5

Cash flow hedge (liabilities) 0.0 4.6 0 4.6

Fair value hierarchy in the measurement of the derivative financial instruments

2011

EUR m Level 1 Level 2 Level 3 Total

Market value of derivatives (assets) 0.0 17.7 0.0 17.7

Market value of derivatives (liabilities) 0.0 12.6 0.0 12.6

The net gain or loss from the measurement of the derivatives used came to around

EUR -3.9m (prior year: roughly EUR 3.7m). Because earnings are recognised in the

corresponding income and expense accounts for energy, these earnings are part of the

operating result.

Net gain or loss pursuant to IFRS 7 from derivative financial instruments

EUR m 2012 2011

Financial assets and liabilities at fair value through profit or loss -3.9 3.7

of which held for trading -3.9 3.7

The risks from the area of derivative financial instruments are essentially market and

credit risks that arise from the company‟s trading activities and the sale of energy. In

terms of market risks, adverse price developments represent the main risk for KELAG.

This risk is counteracted by a commodity risk management system with limit systems

derived from the central risk management system. The same applies to the area of credit

risk, where bad debts and the replacement and re-use risks are limited and controlled by

strict selection and intense monitoring of the trading and distribution partners.



66

The carrying amount of the loans and receivables corresponds more or less to fair value.

Carrying amounts and fair values by measurement category 2012

Assets – items in the statement of financial position

Measurement

category

pursuant to

IAS 39 Level

Carrying

amount as of

31/12/2012

Fair value as

of 31/12/2012

EUR m

Other interests in other entities FAAC 124.9 124.9

Securities FAAFS/HTM 1 29.6 29.3

Other loans LAR 4.1 4.1

Other - 2.2 -

Other financial assets and other non-current

receivables 35.9

Trade receivables LAR 53.6 53.6

Receivables from associates LAR 0.7 0.7

Derivative financial instruments relating to energy FAHFT 2 27.7 27.7

Other - 31.4 -

Trade receivables and other current assets 113.5

Cash and cash equivalents LAR 250.8 250.8

Aggregated by measurement category

Financial assets at cost FAAC 124.9 -

Loans and receivables LAR 309.2 -

Available-for-sale and held-to-maturity financial assets FAAFS/HTM 29.6 -

Financial assets related to trading FAHFT 27.7 -

FAAC … financial assets at cost

LAR … loans and receivables

FAAFS … financial assets available for sale

FAHFT … financial assets held for trading

HTM … held to maturity



67


Liabilities – items in the statement of financial position

Measurement

category

pursuant to

IAS 39 Level

Carrying

amount as of

31/12/2012

Fair value as

of 31/12/2012

EUR m

Bonds FLAAC 1 400.0 416.0

Financial liabilities to banks and others FLAAC 53.3 53.3

Financial liabilities to others FLHFT 1 4.6 4.6

Non-current and current financial liabilities 457.9 474.0

Trade payables FLAAC 0.1 0.1

Liabilities to associates FLAAC 3.8 3.8

Other - 60.5 -

Other non-current liabilities 64.4



Liabilities to affiliates FLAAC 47.5 47.5

Derivative financial instruments relating to energy FLHFT 2 26.5 26.5

Other - 91.6 -

Trade payables and other current liabilities 219.2


Financial liabilities at amortised cost FLAAC 558.3 -

Financial liabilities held for trading FLHFT 31.1 -

FLAAC … financial liabilities at amortized cost

FLHFT … financial liabilities held for trading



68


Assets – items in the statement of financial position

Measurement

category

pursuant to

IAS 39 Level

Carrying

amount as of

31/12/2011

Fair value as

of 31/12/2011

EUR m

Other interests in other entities FAAC 125.9 125.9

Securities FAAFS/HTM 1 27.9 27.9

Loans to other investees and investors LAR 0.1 0.1

Other loans LAR 4.8 4.8

Other - 2.1 -

Other financial assets and other non-current

receivables 34.9 -

Trade receivables LAR 40.3 40.3

Receivables from associates LAR 2.8 2.8

Derivative financial instruments relating to energy FAHFT 2 17.7 17.7

Other - 18.2 -

Trade receivables and other current assets 79.1 -

Cash and cash equivalents LAR 87.6 87.6


Financial assets at cost FAAC 125.9 -

Loans and receivables LAR 135.6 -

Available-for-sale financial assets FAAFS 27.9 27.9

Financial assets related to trading FAHFT 17.7 17.7

FAAC … financial assets at cost

LAR … loans and receivables

FAAFS … financial assets available for sale

FAHFT … financial assets held for trading



69


Liabilities – items in the statement of financial position

Measurement

category

pursuant to

IAS 39 Level

Carrying

amount as of

31/12/2011

Fair value as

of 31/12/2011

EUR m

Bonds FLAAC 1 248.7 259.9

Financial liabilities to banks and others FLAAC 28.8 28.8

Non-current and current financial liabilities 277.5 288.7



Other - 57.5 -

Other non-current liabilities 61.4 -



Liabilities to affiliates FLAAC 28.7 28.7

Derivative financial instruments relating to energy FLHFT 2 12.6 12.6

Other - 66.1 -

Trade payables and other current liabilities 159.2 -


Financial liabilities at amortised cost FLAAC 348.7 -

Financial liabilities held for trading FLHFT 12.6 -

FLAAC … financial liabilities at amortized cost

FLHFT … financial liabilities held for trading

In the income statement, a total interest expense of roughly EUR 2.3m (prior year:

roughly EUR 1.2m) calculated using the effective interest method was recognised for

financial assets and liabilities not measured at fair value through profit or loss.

6.2. Liquidity risk

The KELAG Group is well positioned in terms of liquidity and met all its payment

obligations on time and properly in the financial year 2012. A possible liquidity risk is

countered by proactive planning of liquidity and cash flows, medium and long-term capital

requirement planning, a conscious move to maintain sufficient liquidity reserves as well

as open credit lines from banks. Maintaining liquidity at all times and increasing financial

flexibility are on the one hand guaranteed by large cash reserves (EUR 250.8m as of

31 December 2012; EUR 87.6m as of 31 December 2011) and on the other by a

contracted cash advance credit line amounting to EUR 250.0m (prior year: EUR 150.0m)

until April, September and December 2015 with a renewal option. Reflecting the

overarching corporate strategy, ensuring adequate liquidity reserves and maintaining an

excellent credit rating remain the primary objectives of the KELAG Group. The liquidity



70

risk can therefore be classified as very moderate, as has also been confirmed by the

rating agency.

6.3. Credit risk

Credit risks arise from non-fulfilment of contractually agreed services. In terms of assets

(mainly receivables and other assets), the reported amounts also represent the maximum

default or credit risk. The risk of default is monitored using regular credit rating analyses

and market observations. Transactions are only concluded with counterparties with an

excellent credit rating based on the external rating of an internationally recognised rating

agency or according to an internal credit rating review. To the extent that default risks can

be identified in financial assets, they are immediately recognised by value adjustments.

Collateral may be required in individual cases, depending on the type and amount of the

respective service.

KELAG‟s investment strategy allows for conservative investments in a diversified portfolio

with banks of good to prime credit ratings. In addition, risk is mitigated for money market

investments by means of limit systems and monitoring. Counterparty risk is limited,

evaluated and monitored based on a uniform approach throughout the Group.

6.4. Market risk

Interest rate risk

The interest rate risk currently remains manageable given the structure of financial

liabilities, as the KELAG Group pursues a conservative investment and financing policy.

The share of variable-rate debt amounts to about 4.25% of total borrowed capital (prior

year: approximately 9.80%). Most of the financing portfolio therefore has a fixed interest

rate and as a result is not subject to any fluctuations affecting cash. The variable interest

rate share is continuously monitored and risks limited to 40% at group level. An interest

rate increase of 1% for variable-rate financial liabilities as of the reporting date would

reduce financial income by around EUR 0.2m (prior year: around EUR 0.3m) per year. An

interest rate decrease of 1% for variable-rate financial liabilities as of the reporting date

would increase financial income by around EUR 0.2m (prior year: around EUR 0.3m) per

year. The KELAG Group is financed with an average effective interest rate of 4.54% (prior

year: 4.60%). The equivalent nominal interest rate is 4.30% (prior year: 4.34%).

Currency risk

The Group Finance Framework Directive stipulates that only transactions in euros are

approved for the fully consolidated group entities with their registered offices in Austria.

KELAG‟s scope of consolidation at year end has no financial liabilities in foreign currency



71

and for this reason the foreign currency risk is negligible. Because of the limited assets in

foreign currencies (approximately 4.97% of total assets in 2012 and approximately 4.34%

of total assets in 2011), the currency translation risk for goodwill and assets is also

negligible.

6.5. Financial risk

The KELAG Group operates as an international energy supplier in an increasingly

complex environment. On the financial markets, energy suppliers are not as heavily

affected by the negative effects of the difficult economic situation because of the non-

cyclical development of their business and the stability of their cash flows. Nevertheless

the KELAG Group is confronted with liquidity, market and credit risks in the course of its

ordinary business activities. The conservative financial strategy of the KELAG Group that

is geared toward continuity and yet adjusted to the varied challenges of day-to-day

business has shown its worth in the current unstable environment. In the area of financial

management, a Group Framework Directive as well as implementation guidelines for

operations serve as a basis for carrying out business and set out binding and stringent

risk measures, responsibilities and controls.

In 2012, Standard & Poor‟s confirmed the KELAG Group‟s A rating, giving the Group a

leading position in both a national and international comparison. The basic prerequisites

for maintaining this position include commitment to a capital structure that is stable and

robust in the long term, compliance with the main KPIs relevant for the rating and regular

and intensive communication and discussion of the Group‟s strategic objectives with the

rating agency.

The fully consolidated companies of the KELAG Group generally do not hold any

derivative financial instruments. Exceptions to this rule are those instruments relating to

trading and one interest hedging instrument that is presented in the consolidated financial

statements as part of the increase in the shareholding and associated full consolidation of

Kärntner Restmüllverwertungs GmbH (KRV) for the first time.

Interest rate and currency risks are minimised by an adequate internal control system for

all financial products used. It is not permissible to use derivatives for speculative

purposes. The risk of counterparty default is reduced by written regulations for Treasury.

Transactions with counterparties (banks) are carried out only if they have at least the

same credit rating as KELAG.

As of 31 December 2012, there are no indications of any further financial risks for the

financial year 2012 that could impact negatively on the business development of the

KELAG Group.



72

6.6. Capital management

The objective of capital management is to maintain a strong capital base, to successfully

continue the path of the value-based growth and innovation strategy based on renewable

energies and thus to promote the Group‟s future development.

For management, the Group‟s capital is its equity reported pursuant to IFRSs. Equity

came to EUR 644.8m as of the reporting date (prior year: EUR 588.0m). Financial

liabilities (current and non-current) amounted to EUR 457.9m (prior year: EUR 277.5m),

while cash and cash equivalents totalled EUR 250.8m (prior year: EUR 87.6m). The

Group monitors its capital using net gearing, which is the ratio of net financial liabilities to

total equity.

With net gearing of 32.1% as of the reporting date (prior year: 32.3%), the KELAG Group

has a stable capital structure.

Net gearing

EUR m 2012 2011

Non-current financial liabilities 454.2 264.1

Current financial liabilities 3.7 13.4

Total financial liabilities 457.9 277.5

less cash and cash equivalents -250.8 -87.6

Net financial liabilities / net debt 207.1 189.9

Equity 644.8 588.0

Net gearing 32.1% 32.3%

Further objectives of capital management include retaining a high credit rating (A rating),

which is also firmly entrenched as a component of the Group‟s strategy, ensuring an

adequate return on equity and a consistent dividend policy.

No changes were made to the capital management objectives, policies or processes as

of 31 December 2012.

6.7. Risk policy

Entrepreneurial activity means that “opportunity is not without risk”. Consequently, the

willingness to take risk and, in turn, risk limits have to be defined. To this end, KELAG

operates a risk management system that addresses risks from its own activities as well

risks from its market environment. The group-wide rules and minimum standards ensure

a systematic and uniform risk management system. It is the KELAG Group‟s strategic

goal to raise risk awareness at all levels, to systematically consider risk aspects in all

business decisions, to improve performance of internal control systems and reporting and



73

to establish a value-oriented risk culture at all levels of the Group, beyond the scope of

the requirements set by the legal minimum standards.

The main focus of group-wide risk management relates to the five risk categories

identified for the KELAG Group – market risks, operational risks, financial risks, systemic

risks and other risks. Risks are identified and managed for each business division and for

material equity investments.

Risks can arise during the execution of operational processes, in any business division or

investment. These are mitigated using for example an extensive internal control system

and with the support of corresponding hardware and software.

The default of trading partners or customers encompasses the risk that energy already

supplied may not be paid or that replacement energy may have to be sourced

(replacement and settlement risk). Risks also arise due to changes in the value of

commodity positions as well as regulatory changes to transfer prices. Risks are mitigated

by executing an initial credit worthiness screening and ongoing credit worthiness

monitoring in line with the value of contracts with each trading partner or customer; in

addition the commodity positions concerned are closed and offset against each other.

6.8. Additional notes

Dividends and interest received are allocated to the cash flow from operating activities.

Dividend and interest paid are recognised in the cash flow from financing activities.

Borrowed capital amounting to around EUR 153.5m was obtained in the financial year

2012.

KELAG has taken over a guarantee for all liabilities resulting from the service agreement

dated 27 October 1998 between KÄRNTNER Entsorgungsvermittlungs GmbH and

Kärntner Restmüllverwertungs GmbH. As the value of this guarantee is secured with the

1996 Consumer Price Index, a contingent liability of approximately EUR 8.1m exists as of

31 December 2012 (prior year: around EUR 3.9m). This guarantee is valid until the end of

the service agreement, in which the two parties waive their termination rights until

31 December 2023.

Bank guarantees recognised as contingent liabilities of approximately EUR 8.7m have

been assumed for the Slovenian subsidiary Interenergo and its subsidiaries as well as for

KelKos Energy Sh.p.k., KelaVENT Charlie SRL and KelaVENT Echo SRL. These chiefly

relate to liability declarations.

In the course of the restructuring of SWH, KELAG Wärme GmbH signed a 50% liability

waiver for the general managers of the SWH Group. In the event that the general

Process risks

Market and credit risks

in energy trading and

distribution

Notes to the

consolidated statement

of cash flows

Contingent liabilities



74

managers are made liable and up to a maximum amount of EUR 2.8m, KELAG Wärme

GmbH will assume 50% of the liability, i.e., a maximum of EUR 1.4m.

In addition, five letters of comfort were issued for the entities Interenergo d.o.o. (for

EUR 12.0m), KelKos Energy Sh.p.k. (for EUR 1.2m) and KelaVENT Charlie SRL (for

EUR 0.8m).

The 2013 ordinance on the renewable electricity contribution charge based on the ÖSG

(Austrian Green Electricity Act) 2012 entered into force on 1 January. It sets the charges

payable by all final customers connected to the public grid by grid level for promoting

renewable electricity for the 2013 calendar year.

On the basis of the authorisation by the ÖSG 2012, the Austrian regulator E-Control

confirmed the price for guarantees of origin that the Green Electricity Settlement Agency

allocates to electricity traders based on their supply volume to final customers at EUR 1.5

per MWh.

As part of the multiple-year incentives regulation system, the new SNE-VO (system user

charge ordinance for electricity) came into effect on 1 January 2013 based on the second

regulatory period for electricity (2010 to 2013). The regulator raised the system user

charges for electricity customers of KNG-Kärnten Netz GmbH by an average of 4.0%.

The second regulatory period for natural gas commenced at the start of 2013. The

existing regulatory system will generally be continued for the second regulatory period

within the new legal framework (Austrian Gas Industry Act (GWG) 2011). Compared to

the first regulatory period, the main changes were a reduction in WACC to 6.42% and

changes in the investment and operating cost factor. The rate setting procedure for

natural gas has set the costs, targets and quantities by means of notice and charges by

ordinance effective 1 January 2013.

Accordingly, as part of the multiple-year incentives regulation system, the new GSNE-VO

(system user charge ordinance for gas) came into effect on 1 January 2013 based on the

second regulatory period for natural gas (2013 to 2017). For grid level 3 customers of

KNG-Kärnten Netz GmbH with an annual consumption of 15,000 kWh this translates into

a decrease in user charges of about 3.3%.

6.9. Related party disclosures

Related parties of KELAG Group include all non-consolidated affiliates or associates and

the controlling companies and their affiliates. Due to its position as majority shareholder,

KÄRNTNER ENERGIEHOLDING BETEILIGUNGS GMBH is a related party, as is its

Subsequent events



75

owner – the state of Carinthia and RWE. The latter also qualifies as a related party on

account of its direct shareholding in KELAG. Companies that are controlled by the state

of Carinthia are also related parties. Because of its direct participation in KELAG,

VERBUND and its subsidiaries are also related parties, as is the Austrian state as the

majority shareholder of VERBUND together with its majority interests.

The parent company that prepares the consolidated financial statements for the largest

group of companies is KÄRNTNER ENERGIEHOLDING BETEILIGUNGS GMBH with its

registered offices in Klagenfurt. The consolidated financial statements are disclosed in the

commercial register of Klagenfurt regional court. The parent company that prepares the

consolidated financial statements for the smallest group of companies is Interenergo

d.o.o. with its registered offices in Ljubljana, Slovenia. The consolidated financial

statements are published with the Agency of the Republic of Slovenia for Public Legal

Records and Related Services (AJPES) in Ljubljana, Slovenia.

The members of the Board of Directors and Supervisory Board of KELAG are related

parties, as are their immediate family members.

The following transactions took place with investments accounted for using the equity

method:

Related party transactions

EUR m 2012 2011

Income statement

Revenue 4.0 4.8

Other income 0.3 0.5

Other expenses -1.4 2.5

Statement of financial position

Receivables 0.7 2.8

Liabilities 6.8 12.6

The transactions with associates mainly relate to energy procurement and supply

transactions.

Revenues from electricity trading activities with shareholders and their affiliates amounted

to about EUR 54.0m (prior year: around EUR 41.2m). Services from electricity trading

activities, subscription rights and network costs of approximately EUR 145.8m (prior year:

around EUR 91.1m) were purchased from the shareholders and their affiliates.

Furthermore, KEH-Kärntner Energieholding Beteiligungs GmbH was charged

approximately EUR 24.2m in the financial year 2012 (prior year: around EUR 17.2m) in

expenses from the tax allocation.

Business relationships

with associates

Business relationships

with shareholders and

their affiliates



76

All transactions were entered into at arm‟s length conditions. The business relationships

are no different from the trade relationships with entities that are not related to the KELAG

Group.

A total of less than 10% of total revenue is recorded with all related parties in the state of

Carinthia.

Information relating to internal group matters must be eliminated and are not subject to

mandatory disclosure in the consolidated financial statements. Transactions by KELAG

with subsidiaries that are fully consolidated therefore do not have to be reported.

Dividends paid

Total

Number of

shares Per share

EUR m EUR

Dividends paid in 2012 for the financial year 2011 30.0 8,000,000 3.75

Dividends paid in 2011 for the financial year 2010 30.0 8,000,000 3.75

In the financial year 2012, the fixed remuneration of KELAG‟s Board of Directors

amounted to EUR 719k (prior year: EUR 696k), while variable remuneration totalled

EUR 296k (prior year: EUR 294k) and non-cash benefits came to EUR 35k (prior year:

EUR 34k). All of these relate to short-term benefits arising from the remuneration of

persons in key positions in the KELAG Group. Long-term benefits to the Board of

Directors in the form of pensions and severance payments of about EUR 428k (prior

year: around EUR 361k) were taken into account.

Members of KELAG‟s Supervisory Board received no compensation.

The KELAG Group does not have any additional material related party transactions.

The KELAG Group is jointly audited by the companies Ernst & Young

Wirtschaftsprüfungsgesellschaft m.b.H. and MOORE STEPHENS ALPEN ADRIA

Wirtschaftsprüfungs GmbH. Expenses of around EUR 264k (prior year: approximately

EUR 230k) were incurred for each of the group auditors in relation to the audit of the

annual financial statements. In addition, expenses of around EUR 198k (prior year:

approximately EUR 36k) were charged by the audit firms for advisory services.

Dividends paid

Notes on corporate

boards

Audit fees



77

Audit fees

EUR k

MOORE STEPHENS

ALPEN ADRIA

Wirtschaftsprüfungs

GmbH

Ernst & Young

Wirtschaftsprüfungsge

sellschaft m.b.H.

Statutory audit

KELAG-Kärntner Elektrizitäts-Aktiengesellschaft 70 77

KNG - Kärnten Netz GmbH 26 27

KI-KELAG International GmbH 9 9

KELAG Wärme GmbH 15 15

KELAG Finanzierungsvermittlungs GmbH 3 3

Kärntner Restmüllverwertungs GmbH 6 0

Wärmeversorgung Arnoldstein Errichtungs- und

Betriebsgesellschaft mbH 4 0

Other services

KELAG-Kärntner Elektrizitäts-Aktiengesellschaft 164 35

296 166

The Board of Directors consisted of the following members during the reporting year:

Univ.-Prof. Dipl.-Ing. Dr. Hermann Egger

Dipl.-Ing. Harald Kogler

Dipl.-Kfm. Armin Wiersma

Members of the Board of

Directors



78

The Supervisory Board consisted of the following members during the reporting year:

Mag. Dr. Günther Pöschl

Chairman

Dr. Rolf Martin Schmitz

First deputy chairman

Ing. Willibald Dörflinger

Dr. Thomas Glimpel

Mag. Leopold Rohrer

Dr. Joachim Schneider

Dr. Johann Sereinig

Dkfm. Dr. Heinz Taferner

Dr. Bernd Widera

Dipl.-Ing. Jochen Ziegenfuß

The following persons were delegated by the works council in accordance with Sec. 110

ArbVG (Austrian Labour Constitution Act):

Gerald Loidl

Second deputy chairman

Gerd Altersberger

Herwig Kircher (until 19 June 2012)

Mag. Petra Krainer (since19 June 2012)

Ing. Helmut Polsinger

Johann Prentner

Members of the

Supervisory Board



79

These consolidated financial statements were prepared by the Board of Directors on the

date indicated. The consolidated financial statements of KELAG-Kärntner Elektrizitäts-

Aktiengesellschaft will be submitted to the Supervisory Board for review and approval on

22 March 2013. The Board of Directors assures that to the best of its knowledge the

annual financial statements prepared in accordance with the relevant financial reporting

standards present a fair view of the KELAG Group‟s financial position and performance.

Klagenfurt am Wörthersee, 18 February 2013

The Board of Directors:

Univ.-Prof. Dipl.-Ing. Dr. Hermann Egger e. h.

Spokesperson of the Board

Dipl.-Ing. Harald Kogler e. h.

Member of the Board

Dipl.-Kfm. Armin Wiersma e. h.

Member of the Board

Approval of the 2012

consolidated financial

statements for

publication


Annual report 2012 | Exhibits

80

I.b EXHIBIT

Statement of changes in non-current assets

EUR k

Intangible

assets

Developed

land and

buildings

Un-

developed

land

Plant and

machinery

Other

property,

plant and

equipment

Pre-

payments,

assets under

construction

and projects

Total

property,

plant and

equipment

Cost as of 1 January 2011 380,043 144,306 4,779 1,634,109 122,491 88,559 1,994,244

Additions 60,706 10,061 0 63,562 8,968 29,844 112,435

Changes in the scope of consolidation 78 2,548 0 13,317 4,252 2,580 22,697

Disposals -294 -211 0 -12,789 -2,084 -2,031 -17,115

Reclassifications 2 22,698 0 43,666 299 -66,665 -2

Exchange differences (net) 0 -1 0 0 0 -140 -141

As of 31 December 2011 440,536 179,401 4,779 1,741,865 133,927 52,147 2,112,118

Accumulated amortisation, depreciation and impairment

as of 1 January 2011 141,213 85,274 0 1,044,769 76,271 4,757 1,211,070

Addition in 2011 *) 14,100 4,881 0 37,159 7,243 0 49,283

Reversal of impairment losses in 2011 0 0 0 -196 0 -296 -492

Changes in the scope of consolidation 25 754 0 4,689 255 0 5,699

Disposals in 2011 -233 -185 0 -9,745 -1,966 0 -11,897

Reclassifications 1 9,164 0 -9,177 23 -11 -1

As of 31 December 2011 155,106 99,889 0 1,067,498 81,826 4,450 1,253,662

Net carrying amount as of 31 December 2011 285,430 79,512 4,779 674,367 52,100 47,697 858,455

Cost as of 1 January 2012 440,536 179,401 4,779 1,741,865 133,927 52,147 2,112,118

Additions 38,391 6,171 63 59,296 8,314 36,396 110,240

Changes in the scope of consolidation 16,984 14,870 315 48,383 15,065 2,211 80,845

Disposals -147 -241 -2 -4,782 -4,068 -843 -9,936

Reclassifications 905 4,697 -7 30,153 -3,937 -31,811 -905

Exchange differences (net) 1 -10 0 -6 -17 -588 -621

As of 31 December 2012 496,671 204,888 5,148 1,874,909 149,283 57,512 2,291,740

Accumulated amortisation, depreciation and impairment

as of 1 January 2012 155,106 99,889 0 1,067,498 81,826 4,450 1,253,662

Addition in 2012 41,764 4,679 0 40,915 7,935 0 53,529

Reversal of impairment losses in 2012 0 0 0 0 0 0 0

Changes in the scope of consolidation 838 3,638 0 18,422 4,855 0 26,915

Disposals in 2012 -147 -138 0 -3,958 -3,617 0 -7,713

Reclassifications 1 -52 0 51 0 0 -1

Exchange differences (net) 0 0 0 2 -1 0 1

As of 31 December 2012 197,562 108,016 0 1,122,930 90,998 4,450 1,326,393

Net carrying amount as of 31 December 2012 299,109 96,872 5,148 751,979 58,285 53,062 965,347

*) In the income statement of the KELAG Group, the impairments were reduced by around EUR 0.3m due to the utilisation of a provision.


Annual report 2012 | Exhibits

81

Intangible assets in the statement of financial position also comprise goodwill from

consolidation entries of around EUR 3.8m (prior year: approximately EUR 4.3m).

Reference is made to Note 10 “Goodwill” for further details.

In accordance with IAS 23, borrowing costs of around EUR 4.6m (prior year: around

EUR 4.2m) were capitalised in intangible assets and property, plant and equipment in

these consolidated financial statements for the financial year 2012; this equates to a

capitalisation rate of 4.5% for the first half-year and 4.0% for the second half of 2012

(prior year for the entire reporting period: 4.5%).


Annual report 2012 | Group management report

82

II. GROUP MANAGEMENT REPORT

1. Company and environment

Economic environment

The slowdown in global economic growth which started in 2011 continued throughout

2012. The subdued demand in the industrialised countries, in the eurozone and the US in

particular, reduced global trade and led to a decrease in exports in the emerging

countries of Asia, Latin America, Africa and the Middle East, which had most recently

been the drivers of global economic growth. International financial markets were

characterised by the downturn in the global economy as well as a renewed tightening of

the sovereign debt crisis in the eurozone. Global economic growth slowed from 3.9% in

2011 to 3.1% in 2012.

The loss of trust in public finances and the financial system as well as dramatic

consolidation programmes placed a burden on economic development in many member

states of the European Union in 2012. Exceptionally high risk premiums on the secondary

market for government bonds reflected the deteriorating financing terms and conditions

for southern European banks and governments. By contrast, the Netherlands, Finland,

Luxembourg, Austria and in particular Germany benefited from shifts in capital towards

safe havens, which reduced their financing costs. The interest spread between the euro

countries did not decrease until the ECB intervened in the summer months. There were

considerable differences in economic development within the eurozone in 2012. While

there was a continuing downturn in economic output in crisis states such as Spain,

Portugal, Italy and Cyprus, other euro countries, including Germany, still recorded positive

growth rates. The growth rate within the EU for 2012 was most recently reported at -0.2%

after +1.5% in the prior year.

Austria‟s economy has to date been able to escape the recession in the eurozone. In the

first quarter of 2012, the domestic economy expanded strongly once again, and then

stagnated over the course of the rest of the year. With estimated economic growth of

0.6% for 2012, Austria is expected to have fallen clearly below the prior-year value of

2.7%, yet seen a significantly higher rate than the eurozone (-0.4%).

The labour market recorded an above-average increase in employment rates in 2012

compared to the long-term trend. However, the economic development was also reflected

here. According to the EU definition, the unemployment level in Austria increased from

4.2% in 2011 to 4.4%. By comparison to the other EU member states, Austria still has the

lowest unemployment rate. Particularly the countries that are severely affected by the

crisis, such as Greece, Spain or Ireland, face high double-digit rates of unemployment.



83

At the beginning of July, in a further step the ECB lowered the key interest rates by a

quarter of a percentage point to 0.75%. Since then interest rates have been at a historical

low. The inflation rate in Austria averaged 2.4% in 2012.

Economic development is expected to stay subdued in the near future. At 1.0%, the

present forecast for economic growth in Austria in 2013 is slightly higher than the 2012

level. A further increase in the unemployment rate is expected on the labour market in

2013.

Conditions in the energy sector

Electricity consumption in Austria of around 69.3 TWh increased moderately by 1.0% in

2012. Austria‟s natural gas consumption fell by 4.5% compared to 2011 to around 95.9

TWh.

The decline in global economic growth was also reflected in the price development on the

international markets for raw materials. With regard to crude oil, however, the economic

impact was outweighed by geopolitical factors. Tensions in Iran on account of its nuclear

programme and the civil war in Syria gave rise to concerns of declining oil supply, driving

prices upwards in the first and third quarter. In 2012, Brent oil traded at an average of

USD 111.5 per barrel, slightly up by 0.7% on the annual average for 2011.

Since a large volume of gas imports into continental Europe are still governed by oil-

indexed contracts, the development of gas prices tends to track oil prices with a time lag.

Since 2010, a small portion of the supply volumes governed by these contracts are

sourced based on the forward prices quoted on the central European gas market. Over

the past several years, trade in freely available gas volumes has become more

prominent. These gas volumes, which are not indexed to the price of oil, trade at lower

prices, as a result of which gas markets are drifting apart. Annual average prices for the

constant supply of natural gas on the German spot market rose from EUR 22.8 per MWh

in 2011 to EUR 25.3 per MWh in 2012. The average forward price for the respective

following year rose less by comparison, up from EUR 26.3 per MWh in 2011 to

EUR 27.0 per MWh in 2012.

The price of hard coal fell considerably due, on the one hand, to weaker demand from

Europe, India and China and, on the other, to excess supply. This was primarily

attributable to coal exports from the USA, where coal is increasingly being substituted by

cheaper shale gas. The forward rates quoted on the European Energy Exchange (EEX)

averaged USD 103.4 per metric ton in the past calendar year. This corresponds to a

decrease of 16.5% compared to 2011.



84

The average price of CO2 emission allowances was halved from EUR 13.8 per metric ton

in 2011 to EUR 7.6 per metric ton in 2012. On the one hand, this substantial fall in price is

primarily due to the sovereign debt crisis in the eurozone and the economic slowdown

this has triggered. On the other, the increasing volume of electricity generated from

renewable sources means that fossil-fired power stations are used less, and the demand

for emission allowances is consequently lower. The EU is pursuing initiatives to reduce

supply in order to raise prices for CO2 emission allowances.

As a result of the fall in prices for coal and CO2 emission allowances and the sharp rise in

feed-in volumes from renewable energy sources, prices on European electricity

exchanges dropped considerably. Base-load electricity on the EEX averaged EUR 42.6

per MWh in spot trading over the reporting period, compared to EUR 53.4 per MWh for

peak electricity. Compared to the financial year 2011, this corresponds to a decrease of

EUR 8.5 per MWh or 16.6% for base load and EUR 7.7 per MWh or 12.6% for peak load.

Prices have also fallen considerably on forward markets. In the reporting period, forward

contracts for the following year (2013 forwards) averaged EUR 49.3 per MWh for base-

load and EUR 60.9 per MWh for peak-load electricity. Compared to the forward for 2012

in the financial year 2011, this corresponds to a decrease of EUR 7.1 per MWh or 12.6%

for base load and EUR 8.5 per MWh or 12.3% for peak load.

Relative price development on wholesale markets

KELAG pursues a long-term sourcing and marketing strategy. This means that a large

portion of the energy production volume is gradually marketed for subsequent years. At

the same time, energy requirements are likewise sourced in advance. KELAG‟s

marketing and sourcing policy levels out short-term price fluctuations and thus helps

improve planning certainty and in turn the stability of earnings. Nevertheless, falling

0

0,5

1

1,5

2

2,5

3

3,5

02.01.2007 02.01.2008 02.01.2009 02.01.2010 02.01.2011 02.01.2012

Electricity

Oil

Coal

2007 2008 2009 2010 2012 2011



85

electricity prices on wholesale markets mean that the profitability of our generation

capacity is in decline.

In the past financial year, the Heating division benefited from colder weather conditions

compared to the long-term average.

Consequences of the legal framework for energy

As part of the 18th UN Climate Change Conference in Qatar in December 2012,

fundamental decisions were made for the future of international climate change policy. In

addition to extending the Kyoto Protocol to 2020, resolutions covered rules on financing

and compensation, promising developing countries an annual USD 200b as of 2020 for

climate protection and compensation for losses due to climate change. Only six countries

besides the EU have committed to the agreement to extend the Kyoto Protocol. A farther-

reaching global climate agreement with the commitment of developing countries as well

as the US, Canada, Russia and Japan is to be developed by 2015 to take effect from

2020.

For years, KELAG has set great store by climate protection and energy efficiency. The

company‟s entrepreneurial alignment is anchored in the 20-20-20 energy and climate

policy targets of the European Union. Under these targets, the EU‟s energy consumption

and CO2 emissions have to be reduced by 20% by 2020. The EU plans to cut

greenhouse emissions by between 80% and 95% by 2050 compared to 1990 levels. The

aim is to raise the share of renewables in the EU‟s energy mix to 20% by 2020. These

European targets were broken down into national targets for each individual member

state. As a result, Austria has to cut its energy consumption by 20% by 2020 and build up

the share of renewables in its total consumption from 23.3% in 2005 to 34%. In 2011,

Austria had already reached a share of 31.0%.

Austria is pursuing the European targets with its national energy strategy which is set on

three pillars: increase energy efficiency, build up renewables and secure energy supply.

Based on the European and national energy policy targets, KELAG has adopted a value-

driven growth and innovation strategy focused on expanding energy production capacity

based on renewables in Austria and abroad while raising energy efficiency. Preconditions

for this are a stable regulatory framework that eases investment in renewables as well as

the expansion and renewal of grids. Other changes to the law that will affect our business

operations also entered into force in 2012.

The new ÖSG (Austrian Green Electricity Act) entered into effect on 1 July 2012. The

main amendments concern the substantial step-up of the annual subsidy increase and

the changed mechanism for the collection of subsidies. The cost of green electricity is

Commitment to

sustainability

Austria‟s national energy

strategy

Austrian Green

Electricity Act entered

into force



86

now mostly billed to final customers via network operators rather than through energy

traders.

On the basis of the new ÖSG, the Austrian regulator E-Control set the price for

guarantees of origin for subsidised quantities of green electricity at EUR 1.5 per MWh.

The ÖSG contains the relevant authorisation for E-Control to set the prices annually.

The new Austrian 2012 ordinance governing feed-in tariffs for green electricity entered

into effect in mid-September. It governs the feed-in tariffs for electricity generated from

renewable facilities with retroactive effect as of the beginning of July 2012 through to the

end of 2013.

The subsidy programme for the production of green electricity in Austria provides for an

annual adjustment of the transfer prices between electricity traders and Abwicklungsstelle

für Ökostrom AG (the clearing and settlement company for green electricity). The Austrian

transfer price ordinance 2012 reduced this clearing price as of 1 January 2012, especially

for electricity from small hydroelectric power plants. The Austrian transfer price ordinance

went out of force upon entry in effect of the 2012 ordinance on the renewable electricity

contribution charge as of 1 July 2012.

The amendment to the UVPG came into force at the beginning of August. This not only

enhanced the participation rights of environmental protection organisations, but also

introduced measures to accelerate the determination process. With respect to

hydroelectric power, the regulations governing small-scale hydropower projects were

revised and an exemption was introduced for efficiency enhancement measures for

existing hydropower projects. Small-scale hydropower plants or wind turbines below

defined thresholds are exempt from the duty to have environmental impact assessments

performed.

At the end of November, the Carinthian state parliament adopted the amendment of the

Carinthian Electricity Act. This amendment introduces a preliminary inspection duty for

underground cabling when installing electrical systems.

At the end of April 2012, the Austrian Federal Ministry of the Economy, Family and Youth

issued the IME-VO (smart meter rollout ordinance). This ordinance provides for at least

10% of the metering points connected to the grid to be converted to smart meters in

Austria by the end of 2015, at least 70% by the end of 2017 and, if technically feasible, at

least 95% by the end of 2019.

As part of the multiple-year incentives regulation system, the new SNE-VO (Austrian

system user charges ordinance) for electricity came into effect on 1 January 2012 based

on the second regulatory period for electricity (2010 to 2013). The regulator raised the

system user charges for electricity customers of KNG-Kärnten Netz GmbH by an average

of 2.8%.

Green electricity transfer

prices 2012

Amendment to the

UVPG (Austrian

Environmental Impact

Assessment Act)

Amendment to the

Carinthian Electricity Act

Smart metering

Regulator‟s ordinances



87

Also on 1 January 2012, the new SNE-VO for natural gas came into effect based on the

multiple-year incentives regulation system for natural gas (2008 to 2012). For retail and

business customers with an annual consumption of 15,000 kWh this translates into a

decrease in user changes of about 6.8%.

Based on the Energy Efficiency Directive adopted by the EU parliament in September, a

draft appraisal was presented at the end of December on the federal government‟s

energy efficiency package. This package is intended to drive forward the implementation

of measures to increase energy efficiency both at energy supply companies and

businesses. In addition, some of the changes relate to switching supplier, basic supply by

grid operators and stricter electricity labelling regulations.

Talks have already been initiated between Österreichs Energie and E-Control as regards

the design of the third regulatory period for electricity grids beginning on 1 January 2014.

Increase in energy

efficiency



88

2. Strategic alignment

The KELAG Group pursues a strategy of value-driven growth and an innovation strategy

based on renewables. The Group‟s strategic alignment was confirmed in 2012 in the

course of the related annual review. The key finding of the strategy review was that,

backed by KELAG‟s solid financial position and performance, it is possible to hold on to

the existing growth and innovation strategy.

Domestic and international growth

KELAG is focusing its domestic growth efforts on building up hydroelectric power

generation capacity in Carinthia and the nationwide heating and bioenergy business.

2012 was the first full operating year of the new Feldsee pumped storage power station at

Kraftwerksgruppe Fragrant and of the new storage pump at the Koralpe power station in

Lavamünd.

KELAG continued to invest in the construction of new power stations in Carinthia in 2012.

The construction phase started at the Tröpolach power station. Work on the joint project

Reißeck II in collaboration with VERBUND Hydro Power AG is progressing according to

plan. This project adds an additional 430 MW of generation and pumping capacity to the

existing Reißeck/Kreuzeck and Malta power station groups.

At an international level, KELAG studies the development and acquisition of selected

hydroelectric, wind and solar power projects. A key company in this regard is the wholly

Growth

Domestic

International

Focus: expansion of hydroelectric activities in Carinthia

Wind power in Austria

Biomass in Austria

Acquiring new customers

Selective growth in South-East Europe for smaller hydroelectric and wind power projects

Innovation

Positioning as a “full-service - provider for renewables,

energy efficiency and new technologies”

Energy consulting

Photovoltaic pilot projects

E - mobility

Smart grids / smart meters / smart home

E - business

Improved positioning as a “green company”

Value management

Value-oriented corporate management as an overarching objective

Securing…

solid equity and an A rating

appropriate returns and cost efficiency

value added for Carinthia as a centre for business and energy

Corporate strategy

Review of group

strategy

Expanding hydroelectric

power and bioenergy in

Austria



89

owned subsidiary Interenergo d.o.o., which is active in electricity trading and the

development of hydroelectric power station projects in the former Yugoslavian states.

With KELAG Trading‟s support, it was already possible to grow the electricity trading

volume to just under 4 billion kWh in 2012. At the beginning of the year, KELAG had four

hydroelectric power stations operating in Serbia, Bosnia and Kosovo. One further 5 MW

hydroelectric power station went online in the summer of 2012 in Bosnia-Herzegovina. In

addition, three hydroelectric power stations with a total capacity of 3 MW were acquired.

Another two small-scale hydroelectric power stations in Kosovo with a total of 20 MW are

under construction.

KELAG has a 10 MW wind farm in operation in Balchik on the Bulgarian Black Sea coast.

Another wind farm on the Romanian Black Sea coast with 14 MW went into operation in

2012. Two further wind farms in Romania with a total capacity of 24 MW are under

construction. The implementation of further wind power projects is in preparation.

In the field of photovoltaics, KELAG commissioned two small-scale projects in Slovenia

with a total capacity of 2 MW in 2012.

Innovation

Energy consulting

The KELAG Group is driving forward its positioning as a full-service provider of

renewables and energy efficiency. Owing to the rising interest of customers in energy-

saving measures, KELAG offers attractive industry-specific energy services such as

energy monitoring for industry and municipalities as well as professional energy

consulting services for private and business customers. As an innovative energy service

provider, KELAG develops forward-looking products. It sells its service packages for

industry and commercial customers via market partners throughout Austria. These are

aimed at affording customers long-term energy efficiency and cost savings. With

SmartMonitoring, KELAG launched a new product in 2013 for industrial companies to

permanently monitor their own energy needs. Under the SmartHome Austria brand,

KELAG sells an innovative home management system, which offers not only increased

energy efficiency but also comfort and safety in households. Private and business

customers can determine their energy-saving potential themselves using the interactive

energy consultant (www.kelag.at). All advice provided by KELAG‟s energy consulting

team centres on customer benefits and responsibility for climate protection and energy

efficiency.

Full-service provider for

renewables



90

Smart metering

The smart metering pilot project launched by KNG-Kärnten Netz GmbH in Ferlach in the

2009 financial year was continued and brought to a close in 2012. The purpose of the

project, which was to achieve a consistent communication infrastructure currently

encompassing 361 metering points to the SAP/IS-U settlement system, was achieved in

full. A total of 270 pilot customers are optimising their consumption patterns and making a

more conscious use of electricity. The pilot project has produced significant findings on

the technical options of different transmission channels. Know-how with respect to future

processes and the organisational measures required support the implementation of the

first steps for the introduction of smart meters required by law.

E-mobility

KELAG is also demonstrating its innovative power in its activities in the field of e-mobility.

Electric cars are seen as an energy-efficient alternative to combustion engine vehicles in

the medium to long term. To this extent, KELAG views e-mobility as a very important topic

for the future. Under the cooperation agreement with RWE, KELAG is installing a modern,

smart public charging infrastructure. In addition, KELAG is in charge of the sale of RWE

charging infrastructure in Austria and Slovenia. KELAG offers charging infrastructure

throughout Austria for dealerships selling and buyers of Renault electric vehicles. In

addition, KELAG is deeply involved in raising awareness of the topic of electromobility

among the general public.

Photovoltaic power

KELAG is engaged in future-oriented technologies for the production of electricity. As part

of a pilot project, it has set up five local photovoltaic facilities in the district of St. Veit an

der Glan with a total output of around 450 kWp and a module surface of about 3,100 m2.

The project was completed at the end of 2012 and serves primarily research and

development as well as demonstration purposes. The heterogeneous structure and

orientation of the power station locations and the use of different technologies provides

plant configurations that make it possible to draw important conclusions about the

performance of the facilities and their long-term behaviour patterns. KNG-Kärnten Netz

GmbH uses the research facilities erected by KELAG to gather experience for the low-

voltage grid in terms of the integration and operational use of local generation facilities.

Further photovoltaics projects in the form of public participation models are at the

preparation stage in Carinthia.

Smart metering

Installation of e-charging

stations

Photovoltaic power



91

E-business

E-business solutions mean that KELAG customers can benefit from modern services

based on the latest technology. The user friendliness and value added of the online

applications available on KELAG‟s website are continually checked and improved.

Renowned benchmarking studies have repeatedly testified to its high service quality on

the internet. KELAG ranked first in the most recent survey of all energy supply companies

in Austria. In the benchmarking of the 100 largest electricity providers in German-

speaking countries carried out in 2012, KELAG came third.

Since the end of 2012, KELAG has been operating an online store of its own for the sale

of energy efficiency products under the SmartHome Austria brand. A specially developed

portal displays the contents of the “Generation climate protection” campaign in interactive

form. For smart phone users, KELAG provides special apps online, such as a filling

station finder, the PlusClub events calendar or the energy diary. Acceptance of these

online services is very high – some 4,200 online registrations in 2012 show that the

majority of new energy customers in the B2C and B2B sectors enter into their contracts

online.

IT projects

In the financial year 2012, KELAG‟s IT implemented a range of business process support

projects. In preparation for ISO certification in terms of IT security, the IT successfully

passed test audits and developed an information security management system. As part of

the Green IT initiative, emissions and electricity consumption are being reduced, as are

resources used and IT operating costs for central IT facilities. The company-wide SAP

system was adapted to future requirements regarding the electricity switching ordinance

2012 and smart metering processes.

Value management

The overarching objective of the KELAG Group‟s approved strategy focuses on value-

based corporate governance. Creating value for investors, customers and employees is

the benchmark for all activities at KELAG.

Our corporate activities are planned, managed and controlled based on a value-driven

management system. Taking the strategic objectives as a starting point, value-based

operational measures are derived and implemented.

Product variety in the

internet

Value-based

management



92

Value added constitutes the central target and indicator in this context. It indicates the

growth in the value of the company and is determined by comparing the return on capital

employed (ROCE) and the cost of capital. Value added is generated when ROCE

exceeds the cost weighted average cost of capital.

As an operating yield indicator, ROCE reflects the ratio of operating result to capital

employed. The cost of capital reflects the minimum interest required for value-based

corporate governance.

Investment in growth is measured based on clear return requirements. Additional value-

driven criteria such as a solid equity ratio and a suitable rating have to be observed.

In the financial year 2012, Standard & Poor‟s once again confirmed KELAG‟s rating of

“A/stable”. This favourable rating is necessary to obtain the best possible terms on the

capital market, with which the objective of an optimal financing structure can be reached.



93

3. Financial position and performance

KELAG was able to defend its good competitive position in the energy market. The

company‟s financial position and performance was strengthened further. In the financial

year 2012, the Group generated consolidated net profit of about EUR 96.3m.

Consolidated income statement

Condensed version in EUR m

1/1 –

31/12/2012

1/1 –

31/12/2011

Revenue, gross 2,007.0 1,660.3

Revenue, net 1,004.6 954.6

Operating result 97.8 97.8

Financial and investment result 13.5 15.8

Consolidated net profit 96.3 91.9

Earnings per share in EUR 12.0 11.5

The high increase in gross revenue is principally attributable to an increased trading

volume. However, even without the trading volume, an increase in revenue was achieved

due to new business and higher water levels.

Revenue, net 1/1 – 31/12/2012 1/1 – 31/12/2011

EUR m % EUR m %

Electricity 760.5 75.7 737.2 77.3

Heat 146.4 14.6 134.0 14.0

Natural gas 84.7 8.4 80.1 8.4

Other 13.0 1.3 3.0 0.3

1,004.6 100.0 954.3 100.0

The entire personnel expenses for the financial year 2012 are above the prior-year level

as a result of the decision to extend the phased retirement model and the associated

provisions of EUR 147.6m recognised.

Cost of materials increased to EUR 659.1m, in line with revenue growth adjusted for

trading volume, on account of the new business generated.

Amortisation, depreciation and impairment came to about EUR 97.0m and, among other

factors, reflect the intensive investment activities of the last few years. Due to changed

market conditions, an impairment loss had to be recognised on a pumped storage power

station.

Other operating expenses of about EUR 74.3m are above the prior-year level, primarily

due to required additions to provisions.

Improved financial

position and

performance



94

The financial and investment result of about EUR 13.5m declined compared to the prior

year mainly due to a lower dividend payment by VERBUND Hydro Power AG.

No financial transactions exposed to risks, such as cross-border leasing, were entered

into by the KELAG Group. Consequently, it was not necessary to recognise any valuation

allowances on such transactions.



95

4. Business divisions

4.1. Electricity/Gas

Electricity Production

KELAG is one of the largest Austrian producers of electricity from hydroelectric power. In

addition, KELAG has activities in the wind power segment. Pilot projects are being

realised in the field of photovoltaic power. With a total of 75 of its own power stations and

drawing on supply rights from third-party power stations, KELAG has a total power station

capacity of 1,070 MW and a total production volume of about 2,906 million kWh in an

average year. KELAG‟s largest production plants are located in the Fragant power station

group. The Feldsee pumped storage power station has seen full operation for more than

one year. Likewise Koralpe power station near Lavamünd completed its first full operating

year as a pumped storage facility.

Work started on the construction of Tröpolach hydroelectric power station with a capacity

of around 8 MW in the financial year 2012. The power station is being realised in

cooperation with a private partner. Further small-scale hydroelectric power projects are at

the approval stage.

KELAG brought the “Solar City St. Veit” pilot project to a close in December when the fifth

facility went online. In total the project has a total module surface of about 3,100 m² and

an output of around 450 kWp. In addition, KELAG commissioned two photovoltaic

facilities in Slovenia with an annual feed-in volume of some 2 GWh.

At present, KELAG‟s largest single investment is the Reißeck II joint project in

collaboration with VERBUND Hydro Power AG. Construction work began in the summer

of 2010. The existing Reißeck/Kreuzeck and Malta power station groups are being

upgraded by an additional 430 MW of generation and pumping output. Start of operation

is scheduled for 2014. Until then, KELAG will invest about EUR 191m for its share of 181

MW generation output and 137 MW pumping output. The investment in this power station

will raise KELAG‟s annual production by 415 million kWh.

In addition to the new construction activities, KELAG undertook further replacement

investments and maintenance measures in 2012 to ensure the availability and supply

reliability of the existing generation facilities. Extensive renewal measures were

implemented on the generator of Wurten 4 machine and modernisation work was

performed on the turbine and ball valve. With respect to the storage facilities, the surface

sealing was completely overhauled at Wölla storage facility. After the Innerfragrant

storage facility had been emptied, KELAG performed an extensive inspection of the

facility.

Photovoltaic power

Pumped storage power

station Reißeck II



96

KELAG continued to pursue its activities abroad with success. In addition to the existing

small-scale hydroelectric power stations in operation in Serbia, Bosnia and in Kosovo, the

Novakovici small-scale hydroelectric power station with a capacity of around 5 MW in

Bosnia-Herzegovina was commissioned once construction was completed in June. The

ground-breaking ceremony was held for two further small-scale hydroelectric power

stations at the site of the existing Lumbardhi power station in Kosovo. Together with the

additionally planned Lumbardhi II power station, the power station chain is planned to

generate some 115 GWh of electricity per year. In December, the project Rosewood was

closed in Bosnia-Herzegovina, involving the acquisition of three operating power stations

with an annual generation capacity in excess of 10 GWh.

In the Dobrogea region on the Romanian Black Sea coast, KELAG built Mihai Viteazu

wind farm with an installed output of 14 MW. Since completion of the commissioning

process, this wind farm has been in full operation. Together with Balchik wind farm,

KELAG has a wind power generation capacity of 24 MW in operation with an expected

annual energy yield of 62 GWh. In the second half of the year 2012, construction work

started on three additional wind power projects in Romania with a total output of 24 MW.

Further hydroelectric and wind power projects are being developed and expected to be

implemented in the near future.

Energy Trading and Distribution

Electricity production

The KELAG Group‟s electricity production increased in the financial year 2012 by

4,610 million kWh or 21.4% to 26,129 million kWh compared to 2011. Besides an

increased trading volume, this is attributable to a higher level of electricity generated by

the Group itself, which rose by 634 million kWh or 27.4% to 2,946 million kWh. This was

driven by the higher water levels, with a water flow quota of 103.4% compared to 88.5%

in 2011. The volume of purchased electricity rose by 3,975 million kWh or 20.7% to

23,183 million kWh.

Electricity sales

The external electricity sales of the KELAG Group increased to 25,242 million kWh. The

change compared to the prior year corresponds to an increase of 4,320 million kWh or

20.6%.

The unit sales to final customers of 4,102 million kWh was at prior-year level. Thanks to

consistent measures to win new customers, KELAG recorded an absolute addition of

Expansion of

hydroelectric generation

capacity abroad

Growth in wind turbines

Increase in electricity

unit sales



97

some 1,800 retail and business customers. About half of private customer unit sales in

2012 were allocable to industry customers outside Carinthia.

By expanding trading frequency, KELAG was able to make optimal use of the volatility of

wholesale prices in electricity trading. Reaching a total of 20,969 million kWh the trading

volume was up 4,318 million kWh or 25.9% compared to 2011.

KELAG holds a solid competitive positioning in all customer segments. KELAG

customers value in particular the responsible use of natural resources, employees‟ high

competence and the reliability of supply.

Thanks to targeted customer retention measures, KELAG was able to further increase

the high level of customer loyalty. For instance, the number of PlusClub members was

increased by about 3% to about 35,000 households. The successful events series for

industry customers, KELAG Business Circle, was continued in the financial year 2012

with events in Graz, Linz, Carinthia and Vienna.

Customers likewise value KELAG‟s commitment to the topics of climate protection and

energy efficiency. Apart from supplying electricity from renewable resources, KELAG has

a core competence in the field of energy consulting. A manifestation of the keen customer

interest in this area is the fact that about 7,000 energy consulting services were rendered

in 2012, resulting in an annual savings potential of about 25 million kWh or 5,300 metric

tons of CO2. This is equivalent to the heating requirements of more than 1,400 detached

houses. These savings will have a sustained impact and ease the long-term burden on

the environment. Moreover, additional savings will be made each year.

In the area of heat pumps, KELAG acquired contracts for some 800 new installations in

2012. In total, this brought the number of heat pump customers up to around 9,000. In

this context, in partnership with “power partners” – selected technicians, electricians and

manufacturers – KELAG offers retail and business customers financing for heating,

photovoltaics and energy systems.

As a special service, KELAG organised energy days for municipalities at which residents

received competent advice on a range of topics from planning of heating systems through

to the financial assistance programmes available. In addition, 103 municipalities in

Carinthia have partnered with KELAG‟s energy consulting team and offer KELAG‟s

municipal energy consulting package to all residents.

With EnergieMonitoring, a special offer for industry customers and municipalities,

potential for cutting operating and maintenance costs can be analysed. In the key

customer segment, more than 50% of KELAG‟s energy consulting services are already

provided outside of Carinthia. Via its own online store, KELAG sells products under the

SmartHome Austria brand to improve energy efficiency as well as comfort and safety in

households.

Defended strong

competitive position

Commitment to climate

protection and energy

efficiency



98

The survey conducted in 2012 among energy consulting customers once again confirmed

the high quality of consulting. 98% of all participants awarded KELAG energy consulting

services top marks and would recommend them.

In addition, KELAG energy consulting offered premium service quality on the internet.

The online energy advisor includes a calculator that allows a comparison of costs and

emissions of heating systems. Some 13,000 visitors were recorded by this service offered

by KELAG energy consulting in 2012.

KELAG‟s range of products and services is subject to ongoing expansion and innovative

and service-driven realignment to make sure that it always meets customers‟ needs.

Gas sourced

The volume of gas sourced increased by 1,840 million kWh or 27.7% to 8,478 million

kWh compared to the prior year. The increase in the amount sourced is primarily

attributable to the increase in the volume of gas trading transactions. Most of the gas was

sourced using long-term supply agreements and via trading partners on the free market.

Seasonal consumption fluctuations were levelled out using gas storage facilities.

Gas sales

The group-wide unit sales of gas rose by 2,148 million kWh or 34.6% to a total of 8,355

million kWh. This increase in unit sales is chiefly a consequence of the increased gas

trading activities of 5,839 million kWh.

In the retail and business customers sector, the number of customers rose by around

1,200 through attractive pricing. An increase in volume was recorded with key customers.

KELAG‟s unit sales of gas to final customers outside of Carinthia were already

considerably higher than 50%.

4.2. Electricity and Natural Gas Grid

As an operator of distribution grids for electricity and natural gas in Carinthia, KNG-

Kärnten Netz GmbH is tasked with providing non-discriminatory access to the grid

infrastructure to all customers and energy suppliers. The high-performance grid

infrastructure has to be functional around the clock, 365 days a year. KNG-Kärnten Netz

GmbH main tasks include managing operations, expanding the distribution grids for

Increased gas trading

activities



99

electricity and gas in line with requirements, ensuring necessary maintenance and

providing efficient repair management.

Extensive investments in the medium- and low-voltage grids over the financial year 2012

were aimed at continuing to guarantee customers in Carinthia the premium quality of

electricity supply to which they are accustomed. To secure future electricity supply in the

Villach region, the approval process for the Villach South 220/110 kV transformer

substation was continued. To further secure electricity supplies for the company Infineon,

KNG-Kärnten Netz GmbH built a new 110/20 kV transformer substation in Auen and

commissioned it in June.

Further focal points were the renewal of the 110/20 kV switchgear installed in the

Innerfragant transformer substation, construction of the new 20 kV load dispatch centres

in St. Michael ob Bleiburg, Goldeck, Völkermarkt Industriepark and Moosburg as well as

renewal and expansion of the 20 kV switchgear at UW Bleiburg. In addition, work started

on renewing the 110 kV switchgear at UW Landskron. In total, the KELAG Group invested

EUR 58.0m in grid facilities in the financial year 2012.

The ÖSG (Austrian Green Electricity Act) 2012 entered into force on 1 July 2012. The

annual subsidy increase for new facilities in Austria rose from EUR 21m to EUR 50m. In

future, grid operators will have to collect not only the flat-rate green electricity charge but

also the green electricity contribution charge. The green electricity contribution charge is

set as a fixed mark-up on the grid user and grid loss charge for all grid levels.

Electricity and natural gas grid sales

The electricity grid sales of KNG-Kärnten Netz GmbH grew by 104 million kWh or 2.6% to

4,100 million kWh compared to the prior year.

The natural gas grid sales rose by 93 million kWh or 4.8% to 2,044 million kWh compared

to the prior year 2011 on account of the higher demand for natural gas from key

customers.

Investment in quality of

supply

Austrian 2012 Green

Electricity Act



100

4.3. Heat

KELAG Wärme GmbH is one of the largest nationwide heating service providers in

Austria. It operates some 900 central heating stations and 79 district heating grids

throughout Austria to supply customers with energy for heating purposes or process

energy. In addition to the generation and distribution of heating and process energy,

KELAG Wärme GmbH also generates electricity through combined heat and power

plants.

The focus of entrepreneurial activity of KELAG Wärme GmbH is on generating heating

and process energy for our customers in as environmentally friendly as possible a form.

The heat sources used are primarily biomass and otherwise unused industrial waste heat

– areas in which KELAG Wärme GmbH holds a leading position throughout Austria.

KELAG Wärme GmbH is the first large Austrian heat provider to do entirely without heavy

heating oil as a primary energy source. Where it is not possible to use industrial waste

heat and heating energy cannot be generated from biomass, natural gas as the by far

most environmentally friendly of all fossil energy sources is given preference as heating

medium.

Besides implementing new projects, i.e., constructing new district heating systems and

central heating stations, KELAG Wärme GmbH expands existing district heating grids to

supply new customers with district heat. It also optimises generation facilities on an

ongoing basis and realises potential for efficiency.

In 2012, KELAG Wärme GmbH received ISO certificates 9001 and 14001. The ISO 9001

certificate attests an efficient and high-quality business organisation, and ISO certificate

14001 documents resource efficiency and appropriate preventive measures to avoid any

negative environmental impact from business operations.

Austria is KELAG Wärme GmbH‟s core market. In addition, it is active in the Slovenian

market via a subsidiary.

Besides KELAG Wärme GmbH, our Heat business division comprises Wärmeversorgung

Arnoldstein Errichtungs- und Betriebsgesellschaft mbH and the Slovenian bio mass

activities as well as Kärntner Restmüllverwertungs GmbH (KRV). The majority of shares

was acquired by Verbund Renewable Power GmbH in 2012, and KRV was therefore

consolidated in full for the first time.

Heat production

The Heat business division‟s heat production increased by 105 million kWh or 5.0% to

2,221 GWh compared to 2011. This increase is attributable to the colder weather in 2012

Biomass and waste heat



101

as well as to the acquisition of a majority holding in Kärntner Restmüllverwertungs GmbH

and the associated full consolidation of the entity. About half of the heat produced

stemmed from renewable energy sources such as biomass and waste heat.

Heat sales

The heat sales grew by 78 million kWh or 4.8% to 1,716 million kWh compared to the

prior year.



102

5. Capital expenditures and maintenance

In the financial year 2012, KELAG implemented an extensive investment programme.

The Group invested about EUR 148.6m in property, plant and equipment and electricity

purchase rights.

Capital expenditures focused on power station projects in Austria and other countries and

distribution grid facilities. In addition, the investments in the 45% interest in the Reißeck II

pumped storage power station should also be mentioned.

KELAG invested about EUR 43.8m in the area of generation in Austria. Some

EUR 58.0m were spent on distribution grid facilities. Around EUR 13.9 million was

attributable to the Heat business division and about EUR 6.9 million to miscellaneous.

Abroad, KELAG chiefly invested around EUR 26.1m in the construction of wind power

projects in Bulgaria and Romania.

Investment

EUR m 2012 2011

Intangible assets 38.4 61.0

Property, plant and equipment 110.2 112.0

Total 148.6 173.0

KELAG spent around EUR 34.7m on maintenance in the financial year 2012.

Maintenance

EUR m 2012 2011

Generation facilities, Austria 5.7 4.7

Grids 15.2 16.6

Heat 2.8 2.3

Other 11.0 1.9

Total 34.7 25.5



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6. Financing and financial strategy

The current uncertainties on the financial and capital markets illustrate the advantages of

the KELAG Group‟s conservative financing strategy. The focus is placed on maintaining

liquidity and strengthening the Group‟s credit standing. The financial strategy is a system

of rules that is embraced by employees and is embedded in the overarching corporate

strategy of the KELAG Group.

In this context, safeguarding a suitable liquidity reserve and maintaining the A rating,

which was once again confirmed, are still the primary objectives that guarantee the

KELAG Group a high level of flexibility and access to the financial markets. In addition,

one of the Group‟s key tasks is to centrally manage financing of group companies such

that it is in line with requirements while ensuring that it is balanced and that maturity

terms match. When selecting financing structures, the Group aims to diversify its sources

of finance and thereby reduce use of existing bank lines. Net financial liabilities increased

from EUR 189.9m to EUR 207.1m. The KELAG Group‟s financing strategy is anchored in

guidelines to this effect that have remained unchanged strategically for years now. It is

essentially based on the following pillars.

Secure a suitable liquidity reserve

KELAG still has high and very stable cash inflows from operating activities. The financing

strategy for 2012 centred on ensuring that the Group had stable internal financing as well

as fast and secure access to cash based on contractually fixed facilities. The KELAG

Group has contractually agreed financing lines amounting to EUR 250m. In addition, the

new bond issued significantly improved the Group‟s liquidity base.

Provide central group financing for KELAG and its subsidiaries in line with

requirements to ensure financial flexibility

KELAG Finanzierungsvermittlungs GmbH (KFG) was established for the purpose of

optimum bundling of all medium to long-term financing measures of the KELAG Group.

KFG is also responsible for short-term liquidity clearance between group companies.

Optimise the risk structure based on predefined limits

Without exception, all financing activities of the KELAG Group are handled in accordance

with the respective rules of the group finance guidelines, which are continually adjusted to

the ever more stringent requirements.

Secure solid creditworthiness by maintaining the A rating

The cost of borrowing and the unrestricted access to financial instruments hinge on the

company‟s credit rating. Because risk premiums are determined based on rating

categories, maintaining KELAG‟s high credit rating in the long term is of crucial



104

importance. In June 2012 Standard & Poor‟s confirmed the good A rating with a stable

outlook.

Statement of cash flows

Cash flow from operating activities of EUR 223.6m increased on the prior year by 15.2%.

It was possible to cover all investments and dividend distributions from the company‟s

internal financing power.

Statement of cash flows

EUR m 2012 2011

Cash flow from operating activities 223.6 194.1

Cash flow from investing activities -153.3 -178.7

Cash flow from financing activities 92.9 -43.8

Change in cash and cash equivalents 163.2 -28.5

Cash and cash equivalents as of 31 December 250.8 87.6

Cash and cash equivalents as of 1 January 87.6 116.1

Key financial indicators

Key financial indicators

EUR m 2012 2011

Cash flow from operating activities 223.6 194.1

Interest cost -21.3 -18.3

Interest income 2.4 2.3

Net gearing as of 31 December 32.1% 32.3%

Net financial liabilities as of 31 December 207.1 189.9

A key financial indicator, the net gearing ratio indicates the degree of indebtedness

expressed as net financial liabilities (interest-bearing financial liabilities less cash and

cash equivalents) as a percentage of equity. This indicator remained virtually stable

compared to 2011 at 32.3%.

Net financial liabilities of about EUR 207.1m are calculated as the sum of non-current and

current financial liabilities of about EUR 457.9m less cash and cash equivalents of about

EUR 250.8m.

The value added constitutes the central target and indicator of KELAG‟s value

management. It indicates the growth in the value of the company and is determined by

comparing the return on capital employed (ROCE) and the cost of capital. Value added is

generated when ROCE exceeds the weighted average cost of capital. ROCE for the

financial year 2012 came to 12.9% and cost of capital to 8.0%, producing a relative value

added of 4.9%.



105

7. Composition of assets, equity and liabilities

In the financial year 2012, KELAG was able to keep its financial and earnings power

stable. The ratio of equity to debt capital remained at a very good level.

Consolidated statement of financial

position 31/12/2012 31/12/2011

Condensed version EUR m % EUR m %

Assets 1,823.5 100.0 1,507.0 100.0

Non-current assets 1,441.9 79.1 1,322.2 87.7

Current assets 381.6 20.9 184.9 12.3

Equity and liabilities 1,823.5 100.0 1,507.0 100.0

Equity 644.8 35.4 588.0 39.0

Non-current liabilities 912.0 50.0 699.0 46.4

Current liabilities 266.7 14.6 220.1 14.6

Relative value added

ROCE

(Return on capital employed)

Operating result

Cost of capital

Average capital employed ÷

−



106

8. Value added

Value added % EUR m

Inputs 74.8 830.4

1 Cost of materials 59.4 659.1

2 Amortisation, depreciation and impairment 8.7 97.0

3 Other expenses 6.7 74.3

Value added 25.2 280.2

4 Employees 13.3 147.6

5 Public sector 1.4 15.1

6 Lenders 1.9 21.3

7 Shareholders 3.6 40.0

8 Company (retained profits) 5.1 56.3

Company output 100.0 1,110.6

Overall, about 76% of the value added remains in the Carinthia region. This corresponds

to about EUR 213m.



107

9. Subsequent events

The 2013 ordinance on the renewable electricity contribution charge based on the ÖSG

(Austrian Green Electricity Act) 2012 entered into force on 1 January. It sets the charges

payable by all final customers connected to the public grid by grid level for promoting

renewable electricity for the 2013 calendar year.

On the basis of the authorisation by the ÖSG 2012, the Austrian regulator E-Control

confirmed the price for guarantees of origin that the Green Electricity Settlement Agency

allocates to electricity traders based on their supply volume to final customers at EUR 1.5

per MWh.

As part of the multiple-year incentives regulation system, the new SNE-VO (system user

charge ordinance for electricity) came into effect on 1 January 2013 based on the second

regulatory period for electricity (2010 to 2013). The regulator raised the system user

charges for electricity customers of KNG-Kärnten Netz GmbH by an average of 4.0%.

The second regulatory period for natural gas commenced at the start of 2013. The

existing regulatory system will generally be continued for the second regulatory period

within the new legal framework (Austrian Gas Industry Act (GWG) 2011). Compared to

the first regulatory period, the main changes were a reduction in WACC to 6.42% and

changes in the investment and operating cost factor. The rate setting procedure for

natural gas has set the costs, targets and quantities by means of notice and charges by

ordinance effective 1 January 2013.

Accordingly, as part of the multiple-year incentives regulation system, the new GSNE-VO

(system user charge ordinance for gas) came into effect on 1 January 2013 based on the

second regulatory period for natural gas (2013 to 2017). For grid level 3 customers of

KNG-Kärnten Netz GmbH with an annual consumption of 15,000 kWh this translates into

a decrease in user charges of about 3.3%.

There were no events after the end of the reporting period on 31 December 2012 that

would have led to a different presentation of financial position and performance.

2013 ordinance on the

renewable electricity

contribution charge

Regulator‟s ordinances



108

10. Development of risks and opportunities

Adequate risk policy

Entrepreneurial activity means that opportunity is not without risk. Consequently, the

willingness to take risk and, in turn, risk limits have to be defined.

To this end, KELAG operates a risk management system that addresses risks from its

own activities as well risks from its market environment. The group-wide rules and

minimum standards ensure a systematic and uniform risk management system. It is the

KELAG Group‟s strategic goal to raise risk awareness at all levels, to systematically

consider risk aspects in all business decisions, to improve performance of internal control

systems and reporting and to establish a value-oriented risk culture at all levels of the

Group, beyond the scope of the requirements set by the legal minimum standards.

Risk organisation

The organisation of the risk management system that has been implemented is designed

to ensure that business decisions and business activities are only executed within defined

risk limits. Risk management is an integral element of the structural and workflow

organisation.

The risks are regularly reported by the company‟s divisions to the Board of Directors.

Risk management process

Key objectives of the risk management system are to create transparency in order to

avoid risks and to efficiently manage risk exposures. Timely notification of all current risks

is essential in order to achieve these objectives.

In accordance with a risk management guideline, risks are treated in a uniform manner

and presented in a risk inventory broken down by probability of occurrence and potential

loss.

Risk categories

Identified risks are classified into five categories (markets risks, operating risks, financial

risks, systemic risks and other risks).

Risks are identified and managed for each business division and for material

investments.

High risk awareness



109

Process risks

Risks can arise during the execution of operational processes, in any business division or

investment. These are mitigated using for example an extensive internal control system

and with the support of corresponding hardware and software.

Market and credit risks in energy trading and distribution

The default of trading partners or customers encompasses the risk that energy already

supplied may not be paid or that replacement energy may have to be sourced

(replacement and settlement risk). Risks also arise due to changes in the value of

commodity positions as well as regulatory changes to transfer prices. Risks are mitigated

by executing an initial credit worthiness screening and ongoing credit worthiness

monitoring in line with the value of contracts with each trading partner or customer; in

addition the commodity positions concerned are closed and settled. Specific guidelines

on commodity risks have been developed in this regard.

Quantity and market price risks in production

In the case of hydroelectric power, whether a planned production quantity is reached or

not largely hinges on the water levels and, in turn, on the weather. Apart from quantity, the

market price level is another factor influencing revenue. Risks are mitigated based on a

long-term sales strategy and by updating forecasts of water levels on a rolling basis.

Operating risks from grid and production activities

The risk of defects in technical plant and equipment due to major weather events (wind

storms, sleet) is minimised using an appropriate maintenance strategy and by taking out

suitable insurance policies.

Regulatory risks in grid activities

The risk that the regulator might fail to factor in existing cost positions when setting

charges is mitigated by means of active regulatory and cost management.

Investment risks

Investment decisions are based on investment and M&A guidelines that define clear

profitability and risk criteria. Observance of high technical standards serves to keep

technical risks to a minimum.



110

Equity investment risks

Equity investment risks result from potential fluctuations in dividends from subsidiaries

and other investees. Targeted equity investment management in accordance with a

guideline (early warning indicators and ongoing monitoring and reporting) is used to

mitigate the risk.

Financial risk

Interest and currency risks are mitigated using an adequate internal control system for all

financial products used.

The risk of counterparty default is reduced by written regulations for Treasury.

Transactions are only entered into with counterparties (banks) that have at least the same

credit rating as the KELAG Group.

Legal risks – compliance

Part of risk management activities are also dedicated to the identification and handling of

legal risks. To this end, a group-wide compliance system was implemented in cooperation

with an international law firm. This system ensures that the probability of legal

infringements by employees of the KELAG Group is kept as low as possible. The

compliance system thus serves to protect both the KELAG Group as well as every

individual KELAG employee, while making a contribution to safeguarding the business

value in the long term.

Internal control and risk management system relating to the financial reporting

processes

In accordance with Sec. 82 AktG (Austrian Stock Corporations Act), it is the responsibility

of the Board of Directors to install an adequate internal control and risk management

system relating to the financial reporting process. KELAG‟s Board of Directors has

accordingly adopted policies that apply group-wide with binding effect.

The accounting department of the group parent KELAG prepares the separate financial

statements of the individual group entities and the consolidated financial statements

using SAP software. KELAG‟s financial reporting process is based on consistent group-

wide accounting policies as well as corporate instructions that are updated at regular

intervals. These contain consistent accounting policies on the recognition, posting and

accounting for transactions that must be complied with by all entities concerned

throughout the Group.

The financial reporting systems are protected by access rights. In addition, the various

processes involve compulsory, automatically triggered control and approval steps.



111

To avoid any material misstatements, automatic controls have also been implemented in

the reporting and consolidation system along with a range of manual controls in the

process. These measures range from a review by management of the profit or loss for the

period through to the specific reconciliation of accounts.

Every quarter, the Supervisory Board is provided with a report on the Group‟s financial

position and performance by the Board of Directors. This also includes additional

information such as detailed variance analyses. Ahead of supervisory board meetings,

the individual KELAG organisational units provide an activity report to the Supervisory

Board.

Risk management covers not only operating risks but also the financial reporting system.

Potential risks relating to the financial reporting process are surveyed on a regular basis

and preventive measures taken. The focus is placed on those risks that typically qualify

as material for the entity.

Compliance and the quality of the internal control system are monitored on an ongoing

basis as part of internal audits. The internal audit function reports directly and regularly to

the Board of Directors.



112

11. Employees

High-performing and dedicated employees constitute prerequisites for the company‟s

ability to compete and continue as a going concern. KELAG tackles the demands of

modern personnel management.

Personnel figures

In 2012, the KELAG Group employed an average of 1,406 employees (measured as full-

time-equivalents, including inactive employees, excluding trainees).

Group company Full-time equivalents

1 KELAG 532

2 KNG-Kärnten Netz GmbH 619

3 KELAG Wärme GmbH 191

4 Kärntner Restmüllverwertungs GmbH 28

5 Foreign investments 36

Total 1,406

Strategic personnel management

Against the backdrop of the company‟s strategic alignment and the growing complexity

this entails, transformation efforts toward a modern human resources function continued.

Underlying factors such as demographic change and labour market shortages

necessitate long-term personnel planning and activities to secure human resources

together with the systematic, requirements-based development of employees. The

methods and tools of personnel management in particular are continually enhanced to

support the implementation of the corporate strategy.

Targeted focal points of 2012

The Job Families project developed as a follow-on project of the HR strategy project was

pursued further. This project supports the development of a company-wide functional

structure. Job families are career profiles derived from existing functions. These career

profiles serve as the basis for future HR measures such as models for career

development as well as personnel marketing or recruiting activities. A modern salary

system drawing on market analyses and existing collective agreements and company

agreements is developed on that basis.

KELAG has traditionally had a large emphasis on training to secure the next generation

of skilled employees. Group-wide, 116 trainees were trained up as electrical engineers,

metal workers, technical drawing designers, warehouse logistics staff, cooks and office

clerks on average for the year 2012. This corresponds to a ratio of trainees to total

Long-term personnel

planning and retainment

“Job Families” project

Diverse basic and

advanced training

opportunities



113

workforce of roughly 10%. A total of 38 trainees were taken on in 2012. KELAG thus

makes an important contribution to the training of qualified professionals and the

employment of young people.

KELAG supports the individual development of employees using targeted measures. In

total, 970 employees of the KELAG Group participated in 4,296 training days. A particular

emphasis is placed on requirements-based further training.

The existing phased retirement model has been extended until 2017 to optimise the

employee structure. This model allows a smooth transition into retirement. Participating

employees remain employed by the company for 18 months on average. In this context,

particular attention is paid to securing the transfer of knowledge to young employees.

Health is the most important asset of each employee. KELAG sees it as one of its tasks

as employer to support its employees through healthcare promotion. As part of the

occupational healthcare promotion project, a holistic concept was prepared to keep fit

and actively prevent illnesses. Focal points are industrial health and safety, a healthy diet,

sport and psychosocial healthcare.

In order to position KELAG as an attractive employer for young people during their

training, the company presents itself regularly at various events held by vocational

training colleges, universities of applied sciences and universities, such as at the

Teconomy job fair organised by the Graz University of Technology. For the third time the

KELAG HR Night was held as part of the Connect job fair of the University of Klagenfurt.

The event‟s objective is to provide companies, personnel managers and students with a

communication platform to discuss personnel topics while identifying future prospects and

trends.

The Group conducted an employee survey in 2012. At three-year intervals, all employees

are surveyed on topics such as work processes, innovations and learning, customers and

quality, leadership, industrial health and safety. The results of the survey are integrated in

the Group‟s continuous improvement measures.

One of the objectives of strategic personnel management is to secure the competences

that will be required in key positions in future. This objective is supported by the group-

wide talent management programme. An orientation centre helps nominated candidates

to identify their individual strengths and potential for improvement based on the KELAG

competence model. Individual development measures are then arranged in subsequent

feedback talks.

In order to increase KELAG‟s attractiveness for women, too, and employee satisfaction

on the part of the female workforce, a group-wide women‟s network has been put in

place. It offers a forum for regular exchange on topics of relevance for women.



114

12. Sustainability

KELAG sees sustainability as an integrated approach to economic, environmental and

social matters. This is a central aspect of the KELAG‟s responsible and long-term

corporate strategy and involves being an active partner for customers, employees and

the region. Company policy is characterised by the increased use of renewable sources

of energy and the implementation of innovative solutions in order to contribute to supply

quality and climate protection in a forward-looking manner.

KELAG’s sustainability programme

The profitability and economic stability of the company are key prerequisites for KELAG‟s

actions to be oriented not only towards business facts and figures, but to also take into

account social and ecological aspects in the management of the business. By making the

use of renewable sources of energy its central task, the company is already making an

important contribution to environmental protection. Many parts of the company are also

proactively taking measures based on a feeling of responsibility towards future

generations. In order to bundle these activities and improve communication and also to

apply sustainability measures to further areas, a group-wide sustainability programme

was launched at the end of 2010.

A core team with representatives from all parts of the company is in charge of

implementing defined measures while at the same time developing the programme

further. The aim is to tackle future challenges in a sustainable manner.

For the first time, KELAG presented the development of its sustainability work to its

stakeholders and the interested public in the form of a sustainability report in the financial

year 2012. This report was prepared in accordance with the guidelines issued by the

Global Reporting Initiative (GRI) for application level B and confirmed by GRI. Besides a

qualitative description of the measures and projects under the sustainability programme,

the report also contains quantitative indicators on economic, ecological and social topics.

Resource-saving energy generation and CO2 avoidance

KELAG generates electricity from domestic hydroelectric power. These clean energy

sources open up a solid foundation for electricity supply while proactively protecting the

climate. With the electricity production from hydroelectric power, KELAG avoids about

one million metric tons of CO2 emissions each year compared to the European energy

mix (ENTSO e-mix). The use of wind power and photovoltaics also emphasises KELAG‟s

commitment to sustainable electricity generation.

Diverse sustainability

activities

Using clean energy

sources



115

KELAG also offers heating from biomass and waste heat. Environmentally compatible

heat generation translates to a reduction of a further 300,000 metric tons of CO2 each

year compared to individual heating systems based on fossil fuels.

Further expansion of renewables in Austria and abroad is one of the central objectives of

the KELAG Group. The focus here is on compliance with environmental standards both in

the construction and the operation of power stations.

Reliable economic factor in the region

For KELAG, sustainability involves not only climate protection and saving resources

along the entire value added chain, but also being a reliable partner for the region.

KELAG meets this standard by not just guaranteeing supply reliability for energy, but also

making a significant contribution to the generation of value added in Carinthia. In the past

financial year, the KELAG Group purchased services with a volume of around EUR 60m

from some 1,000 suppliers in Carinthia. In Carinthia, the KELAG Group generates value

added, including indirect effects, in excess of EUR 330m per year. The company plans to

invest around EUR 1.9b in the expansion of the energy infrastructure by 2022.

Businesses in Carinthia will be among the first to benefit from this investment volume.

In addition to the roughly 1,400 jobs that KELAG offers, the company secures a total of

about 3,000 jobs in Carinthia in light of its growth strategy. Furthermore, the KELAG

Group offers training for some 110 young people every year in anticipation of the future

demand for qualified employees, thereby also providing impetus against youth

unemployment.

Social responsibility

KELAG promotes initiatives in the areas of art, culture, sport and other social activities.

Apart from responsibility for climate protection and energy efficiency, KELAG supports

numerous sustainable corporate social responsibility projects.

KELAG is involved in various cooperation projects to foster the social integration of

people with disabilities and the integration of the long-term unemployed in the workplace.

In 2012, for instance, KELAG again supported the organisation INCLUSIA, which

organises workshops at which school children from Carinthia can engage with disabled

people from across Europe. Concerts in senior citizen‟s, nursing and disabled people‟s

homes are supported via the Live Music Now project. Besides the therapeutic effect of

music, this project also provides important support for young musicians in Carinthia.



116

In the field of sports, KELAG sponsors young sportsmen and women from Carinthia, for

example via the Kärnten Sport association. KELAG has also confirmed its commitment to

sport for disabled persons via a cooperation agreement with Kärntner

Behindertensportverband.

On the culture stage, KELAG has two focal points, namely music and literature. Apart

from the Carinthia music association, with its rich tradition, and the Carinthian Summer,

KELAG supported the events Trigonale and La Guitarra Esencial in 2012. “Tage der

deutschsprachigen Literatur” (German-language literature days) was one of the Group‟s

main areas of involvement in the world of literature. In addition, KELAG furthered reading

and writing at schools with projects such as the Schulhausroman project.

In the area of education, activities focused on initiatives like “NAWIMIX”, which promotes

efforts to provide children early access to the natural sciences and technology. With

support for projects such as “Safety on tour” children‟s safety olympics or “Große

schützen Kleine” (the big protect the little ones), KELAG again promoted fun ways to give

children safety training and prevent accidents at an early stage in 2012. The long-

standing cooperation with Kärntner Bildungswerk is further evidence of KELAG‟s social

commitment.

Climate Protection Generation

Since 2008, KELAG has bundled its climate protection and energy efficiency activities

under the slogan “Climate Protection Generation”. The emphasis is placed on creating an

awareness for the responsibility of each and every individual. The company is in a

position to share its expertise with customers, showing them the contribution to climate

protection that they could make with KELAG at their side. This involves activities that can

be put in practice in everyday life as well as expert energy consulting sessions

highlighting extensive energy savings potential.

In 2012, KELAG further pursued its campaign with the slogan “Climate Protection

Generation – Changing the Future. Now.” The focus in on topics such as grids, energy

efficiency using the example of smart homes, or heat generated from biomass.

Raising public

awareness for climate

protection



117

13. Research and development

In research and development, KELAG focuses on application-oriented activities in the

field of technology, primarily in cooperation with universities. The Group cooperated with

institutes of Graz University of Technology, the University of Klagenfurt, RWTH Aachen

University and the Milan Vidmar Electric Power Research Institute in Ljubljana in 2012.

Current projects relate to the following topics: technical diagnosis of operating resources,

assessment of the condition and risks from technical plant and equipment, earth fault

detection in grounded grids and stability issues in the establishment of isolated grids. In

addition, basic considerations on the topic of smart grids, likewise addressed in

cooperation with industry partners, are of significance. E-business activities were the

focus of the efficient use of electric power again in 2012.

Supplementary to its in-house activities, KELAG co-finances R&D projects under the

“Research and Innovation” programme of the Austrian energy advocacy group,

Österreichs Energie. Österreichs Energie initiates and coordinates joint research

activities of its member companies. The key issues in 2012 were: supply security and

reliability, regulatory issues, power station capacity, information and communication

technology, smart metering.

14. Other disclosures

All financial instruments of relevance for the assessment of the financial position and

performance are presented in the consolidated financial statements. KELAG does not

have any branches in Austria or abroad.



118

15. Outlook

The energy industry is facing a difficult market environment. Due to the high level of

capital employed, investment decisions must be based on a reliable long-term political

framework or relatively stable planning parameters. In light of the EU‟s 20-20-20 targets

in the context of liberalisation and regulation as well as the energy policy decisions on the

new energy concept, there has been an increase in the uncertainties relating to the legal

and economic framework for the energy industry. Added to this are uncertainties arising

from the financial crisis and the economic development in Europe. The improvement in

leading indicators points to an economic recovery by mid-year 2013. For the year as a

whole, Austria is expected to see a slight increase in the growth rate to 1.0%.

The new energy concept has many different implications. In view of the economic

development and substantial increase in generation capacity for renewable energies, in

Germany in particular, we anticipate the temporary excess supply of generation

capacities to continue. Accordingly, we forecast slightly declining wholesale market prices

on the European electricity market. In the long term, we therefore expect a lower level of

profitability of our hydroelectric power stations, as we market the respective quantities

amidst the competition on the wholesale market. At the same time, we expect the return

on capital employed to be lower for our grid business on the basis of discussions with the

regulator on the mechanisms of the third incentive regulation period although investment

incentives for the grids are needed for the new energy concept to succeed. The draft

Austrian Efficiency Act also highlights that the rules of measurability and chargeability of

energy efficiency measures initiated and performed by energy companies are unclear and

could lead to an increase in expenses subject to risks.

Despite the uncertainties inherent in the economic and legal framework conditions

affecting the energy industry, we will uphold our strategic alignment in terms of the value-

based growth and investment strategy on the basis of renewable energies. Our stable

financial and earnings power anchored in our broad portfolio of business segments

means that we are able to continue our long-term investment programme. We have

budgeted about EUR 234m for new construction and maintenance in 2013. The focus will

remain on hydroelectric and wind power projects, biomass projects in the heating sector

and the modernisation of the grid infrastructure. However, we will examine these projects

against tighter risk criteria in a market environment that is becoming increasingly

uncertain.

We will rigorously grow our portfolio of products and services in line with changing

customer requirements as well as the competitive and market environment. The focus will

be on expanding the offering of energy-related services in the context of climate

protection and energy efficiency. In addition, we will continue to address the development

of innovative technologies ranging from increasing convergence of telecommunications,

Continuation of growth

and innovation strategy

Further development of

products and services



119

information and electricity networks through to smart technologies, electromobility and

internet developments.

Apart from consistent market and customer orientation, operational excellence and cost

management are key management tasks for the flexibility and future sustainability of our

company. This means that we will increasingly review our processes and organisation for

efficiency and adapt them according to the economic requirements in a continuous

improvement process. For example, we aim to capture additional cost improvement

potential, proactively use our block phased retirement model and monitor and structure

the optimal capital allocation of our finances in a targeted manner.

Our corporate philosophy is founded on the principle of sustainability. To this end, we

endeavour to strike an optimal balance between business stability, reliability of supply,

climate protection and social responsibility. With the “Climate Protection Generation”

campaign we will again communicate our commitment to climate protection in the coming

year. Our aim is to further underscore the sustainable gearing of our entrepreneurial

activities and to clearly confirm KELAG‟s green image. In addition, we will show our

customers how they can make a joint contribution to climate protection. In addition, we

will intensify the open dialog with our stakeholders on a partnership basis regarding the

opportunities and risks of the new energy concept and our entrepreneurial activity.

We will continue to systematically pursue the course we have taken, guided by values,

growth, innovation and climate protection principles. Despite the high level of

uncertainties regarding the market environment, we anticipate earnings stability in 2013.

Klagenfurt am Wörthersee, 18 February 2013

The Board of Directors:

Univ.-Prof. Dipl.-Ing. Dr. Hermann Egger e. h.

Spokesperson of the Board

Dipl.-Ing. Harald Kogler e. h.

Member of the Board

Dipl.-Kfm. Armin Wiersma e. h.

Member of the Board

Earnings stability

anticipated

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